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34 Nation's Business December 1993
<br /> FINANCE
<br /> C ` A Small Business
<br /> asbt oIn Administration program r
<br /> has enabled thousands of i
<br /> tin 504 companies to borrow at
<br /> Loans expand.le rates and
<br /> p I
<br /> By J. Tol Brooms Jr.
<br /> l
<br /> onnie Jones of Greensboro, N.C.,
<br /> had always dreamed of expanding l t` t
<br /> his auto body shop business, but + `. , �,` s
<br /> financing posed a major obstacle. F t111 '"
<br /> The banks he visited wanted a 25 to 30 percent down payment in cash plus ��� t
<br /> monthly loan payments that would not l
<br /> have been affordable.
<br /> Then Jones meta banker who sag- t lij 4
<br /> N"= '
<br /> gested that he apply fora loan under thes ,t C ,
<br /> U.S. Small Business Administration's '""` � 1, 1 ,,
<br /> Section 504 program. With a 10 percent ,
<br /> down payment and an affordable monthly qa, . t
<br /> a anent,Jones found that he was able to a 1oeli .,
<br /> buy land and construct a 5,400-square- ' >
<br /> foot body shop.
<br /> "I was certainly pleased with the down . .x R . r f r '�„ .p,. ',
<br /> � ,
<br /> payment part of the package,"Jones says. c �'
<br /> "We got an excellent interest rate coin- .1*
<br /> pared to our other options at the time,and . ' 40/ 5;
<br /> a lower monthly payment." �e /i`
<br /> Within a year and a half of completing ''
<br /> ,e new facility, Jones Body Shop had ""1"../.../....i."'" ,
<br /> ubled its annual sales and added six PHOTO:OWANE HALL
<br /> employees,bringing the total to 10. Expanding his business turned from dream to reality for Donnie Jones of Greensboro
<br /> Since its inception in 1981, the 504 N.C., thanks to the federally guaranteed Section 504 loan program.
<br /> program has generated more than $4.6
<br /> billion in loans. The program reached a
<br /> new high in the 1993 federal fiscal year guarantee if the borrower defaults. The CDC,the project must create at least one
<br /> that ended Sept. 30, with 2,454 loans bank,meanwhile,agrees to provide long- new job.
<br /> totaling$813 million. term financing for the remaining 50 ■Machinery and equipment financed
<br /> Even with this record of impressive percent.It should be noted that the bank, must have a useful life of at least 10 years.
<br /> growth,many owners of small businesses not the borrower, initiates contact with ■The borrower must plan to occupy at
<br /> are unaware that the program exists.And the local CDC. least two-thirds of a building constructed
<br /> some others who have heard of 504 loans "Our bank has utilized the program a with the loan.
<br /> steer clear of them because of the pro- great deal in recent years," says David ■For purchase or remodeling of an
<br /> gram's association with the federal gov- Trautman, a vice president with Park existing facility, the borrower must plan
<br /> ernment. National Bank, in Columbus, Ohio. "The to occupy at least 50 percent of the space.
<br /> To help you determine whether you borrower is able to preserve working IN The borrower must qualify as a small
<br /> should explore the 504 program,here's an capital for other uses, and the program business. An applicant is considered a
<br /> explanation of how it works: offers an attractive rate structure and small business if the firm's net worth does
<br /> favorable repayment terms." He adds not exceed $6 million and if after-tax net
<br /> Fixed-Asset Financing that prospective borrowers are often profits have averaged less than$2 million '.
<br /> The program is designed to provide "surprised to find that a 504 application during the previous two years.According 4
<br /> long-term, fixed-asset financing to small does not involve mounds of paperwork." to the SBA, 98 percent of all U.S. n
<br /> businesses, specifically for land, build- The entire application process usually companies meet the agency's definition. 'V
<br /> Ings, and equipment. There are four key takes from four to eight weeks,according i Strict equity requirements usually
<br /> players in every 504 deal: the borrower, to Mark Barbash,who is executive direc- prohibit start-ups from participating in
<br /> the bank,the Small Business Administra- tor of the Columbus Countywide Develop- the 504 program. `.
<br /> tion (SBA), and a certified development ment Corp. "We encourage our banks to
<br /> company(CDC). call us early in the process," he says. Jobs,And More Jobs
<br /> The borrower is generally required to "That way we can begin some preliminary Since its inception,the 504 loan program's
<br /> make a down payment of only 10 percent. evaluation before the package gets here, principal mission has been job creation,
<br /> e CDC provides 40 percent at a long- which expedites the approval process." says Martin Orr,chief of the development
<br /> rm fixed rate,with an SBA repayment company branch of the SBA,in Washing-
<br /> Eligibility Requirements ton, D.C. "The overall emphasis [of the
<br /> J. Tol Broome Jr.is a loan administrator There are several basic eligibility restric- 504 program] is on creating jobs and
<br /> with FirstSouth Bank in Burlington, tions imposed by the SBA: meeting needs of local communities."
<br /> N.C. ■For every $35,000 loaned by the According to SBA records,loans made
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