Does Your Client Qualify for SBA 504 Financing? The Answer Often Is ‘It Depends’

Let’s be honest, no one wants to hear “it depends” when they’re asking about loan qualification—and you might not even like to say it. It’s like asking whether or not it’s going to rain and getting a shrug from the forecaster. We all want answers.

While a simple “yes” or “no” makes taking next steps easier, when it comes to SBA 504 financing, the answer is often “it depends.” But that’s where we come in!

Every client that comes to you is unique. They have different stories and different goals. Getting a handle on the basics of how clients qualify for 504 lending will help you guide them towards the right option—and know when to pick up the phone and call us. 

The “it depends” reality

Qualifying for an SBA 504 loan isn’t black and white. We dig into each and every deal and get to know the details. That way, we can guide clients in the right direction. These are some of the factors that determine where the client will go from “it depends”: 

• Use of funds: Getting clear on how exactly the funds will be used will clarify whether or not 504 funding is the right choice. SBA funds can’t be used for working capital, for instance. 
• Business size: When evaluating a business for a 504 loan, we’ll take a look at profit, equity, and number of employees. If the client qualifies as a small business, they’re one step closer to a “yes.” 
• Owner-occupancy: For 504 lending, the owner has to occupy at least 51% of the building. There’s some wiggle room in the process, so we’ll look at all the details and work with the owner to figure it out.
• Industry matters: If your client is in manufacturing, higher loan limits give them more financing flexibility.

The beauty of the “it depends” reality is that there is a lot of flexibility. It can sound complicated if you’re not familiar with the nuances, but in the right hands, this process can be simple. When we get the full picture of the business and its workings, we can look at ways to creatively structure the loan. This can take what seemed like eligibility challenges from an “it depends” to a resounding “yes.”

The basic qualification framework

Let’s break this down into a few categories, so you know when to call us.

The “usually yes” scenarios

These are the deals that have us dancing at our desks. 

• An established business (2+ years) buying large equipment
• An established business buying a building that they are occupying or will occupy
• Positive cash flow and strong credit
• Loan amount between $50,000 and $5 million for the SBA portion. For manufacturing, the loan can be up to $5.5 million.

For projects that fall into these categories, get us on the phone, so we can get things moving!

The “let’s talk” scenarios

Your client’s business might not fit into a “usually yes” scenario, but there are a lot of “let’s talk” scenarios that mean you should give us a buzz.

• Startups with experienced owners and solid plans
• Service businesses buying specialized facilities
• Multi-tenant properties
• Low credit scores

In these scenarios, call us as early as possible. We’ll have a conversation with the client and get the story behind their business. Multi-tenant properties, for instance, can work as long as the borrower will occupy over half of the property. For clients with low credit scores, we’ll weigh the credit story over the score to see if they’re eligible.

The “probably not” scenarios

As much as we love helping business owners achieve their dreams, there are some scenarios that just won’t fly with the SBA 504 requirements no matter how much we’d love to make it happen.

• Passive real estate investment or owner-occupancy below 51%
• Working capital needs

The magic words: “Let’s explore this together”

Before you say no to your client, say the magic words—let’s explore this together. Then, give us a ring. If the client's situation feels borderline, unique, or even a little weird, we want to chat. The earlier you call us, the more time we have to get to know the client, their business, and their goals. And the better we know the client, the more likely we are to spot an opportunity to turn “it depends” into a “yes!”

Your partner advantage

With decades of SBA 504 experience, we bring a ton of knowledge and a lot of enthusiasm to the qualification process. We’ve seen it all, and we know how to spot a deal. When you refer an “it depends” client to RBAC, you get to wear the hero cape. You show that you believe in them and their business even if they don’t fit into a traditional credit box. They’ll see that you went the extra mile to help them, and while we handle the SBA, you keep the relationship.

Working with us early also makes everyone’s life easier. We ask a lot of the same questions as the bank, and when we get information at the same time, it saves us all time and endless emails. We can even do the underwriting process at the same time as the bank to really keep things moving. 

But what if it won’t work? We’ll be honest with you when we know something won’t work, and this feedback helps you understand more about our process and what businesses may actually qualify for funding. 

Here’s the bottom line—when in doubt, ask us. We’d rather explore the possibilities together than miss out on helping a good business succeed. Even if it’s a no on our end, the client will know that you tried your best to help. That way, when they are ready for a loan, they’ll come to you!