Funding is essential for the success of any business, new or old. Having a reliable source of financing whenever you need to fund a growth project–purchase furniture or equipment, acquire a new facility, improve an existing one, etc.–is crucial for businesses trying to grow or expand.
Unfortunately, numerous barriers stand in the way of many rural small businesses seeking financing. Generally, small enterprises looking for external financing face hindrances such as low credit scores, lacking the required collateral, insufficient cash flow, and too much debt. The situation is even worse for rural small businesses as they have fewer local financing options and have a harder time finding loans than a small business in a city would.
However, the SBA 504 loan program is a handy alternative for rural small businesses struggling to get funding. An SBA 504 loan is a fixed-rate, long-term financing option for small businesses in need of funds for constructing, purchasing, and refinancing major assets. Though regulated by the U.S. Small Business Administration (SBA), the loans are available through Certified Development Companies (CDCs), hence the name SBA 504 CDC loan.
The maximum loan limit is $5 million though you can get up to $5.5 for some energy-efficient and manufacturing projects. Generally, if you have a feasible business plan and are a for-profit business with a tangible net worth of $15 million and below, you can qualify for an SBA 504 loan.
2023 U.S. House & Senate Bills Related to Rural Small Businesses
In addition to the SBA 504 loans, there’s increased lobbying for funding expansion for rural small businesses to spur economic growth (infrastructure expansion and job creation) in the rural areas. For instance, between January and the first week of February 2023, four bills were introduced in the House and Senate, seeking amendments to the Securities Exchange Act and the Small Business Act to empower small business owners to access more financing.
The bills include H.R.298, H.R.414, S.294, and S.77.
- H.R.298 (Expanding Access to Capital for Rural Job Creators Act) was sponsored by Representative Alexander X. Mooney and introduced in the House on January 11th, 2023. The bill seeks to amend the Securities Exchange Act of 1934 to extend access to capital for rural job creators.
- H.R.414 (Investing in Rural Manufacturing Act) was introduced in the House on January 20th, 2023, seeking to amend the Small Business Act to introduce a rural manufacturing forgivable loan program.
- S.294 was sponsored by Senator John Kennedy and introduced in the Senate on February 7th, 2023. The bill seeks to amend the Securities Exchange Act to expand capital access for rural small businesses.
- S.77 (STEP Improvement Act of 2023) was introduced in the Senate on January 25th, 2023. The bill seeks to amend the Small Business Act in regard to the State Trade Expansion Program on issues such as timing, application information, budget plan revisions, surveys, and performance metrics.
If adopted, the acts will expand financing access for small rural businesses, bridging funding gaps and empowering rural ventures to operate competitively. For instance, H.R.414 (Investing in Rural Manufacturing Act) seeks to avail loans to rural businesses manufacturing goods critical to rural sector infrastructure. If adopted, an applicant may qualify for loan forgiveness if the Administrator establishes they have met at least 75% of the job creation goals outlined in their business plan within five years of receiving the loan.
How Can Rural Small Businesses Take Advantage of SBA Loans?
In the face of the challenging funding landscape that rural small businesses operate in, SBA 504 CDC loans are a welcome relief to rural enterprises seeking growth opportunities. The fact that it is a long-term facility with low fixed interest rates makes it an affordable and suitable solution for small rural ventures.
The SBA 504 loan comes with no balloon payments and you can receive up to 90% financing. That is, you contribute 10% to the project, CDCs finances 40%, while third-party lenders (bank or credit union) finance the remaining 50%.
If you have failed to secure funding from other financial institutions, you can apply for the SBA 504 CDC loan as long as you are a for-profit business operating in the United States. Besides the longer repayment terms (10, 20, or 25 years), the loan comes with capped interest rates, making it even more suitable for young rural businesses with cash flow challenges. Another plus is that the SBA has resource centers that empower small business owners with relevant information and support.
However, there are restrictions on how you can utilize the funds. Below are examples of approved and unapproved uses:
Approved Uses
- Purchase of existing building
- Construction of new facilities
- Purchase of long-term machinery and equipment
- Improvement of land, streets, parking lots, or landscaping
- Purchase of land
- Improvement of existing facilities
Unapproved Uses
You cannot use SBA 504 CDC loan for:
- Working capital
- Purchasing inventory
- Consolidating, refinancing, or repaying debt
- Investment in rental real estate
SBA 504 Loan Application, More Information, and Additional Resources
To apply for an SBA 504 loan, you must first ascertain that you meet the SBA eligibility criteria. Here is a rundown of some of the requirements.
- Operate a US-based for-profit company
- Tangible net worth of $15 million or less
- Average net income of $5 million after federal taxes (in the last two years)
- Qualified management expertise
- Feasible business plan
- Good character
- Ability to repay the loan
After determining your eligibility, applying for the loan is as easy as completing the application and speaking to one of our loan experts! After you complete the application we can use our customized software to reduce your paperwork for the remainder of the process.
For more information and additional resources, visit the rest of our site for more details about the 504 loan program or for additional resources for small business owners. If you have any questions please contact us and we will get back to you as soon as we can.