Qualifying Projects

Generally, any project involving the purchase, construction, or improvement of fixed assets is eligible. Examples include:

  • Land and building acquisition
  • Construction and renovation
  • Purchase of heavy machinery or equipment

Reasonable contingencies (up to 10 percent), furniture and fixtures, and soft costs (such as professional fees and interest during construction) generally can be included. Investment and residential properties are not eligible.

Eligible Businesses

Business owner must be a U.S. citizen or legal permanent resident with visa, or resident alien with a green card

  • Any for profit business
  • Any business structure (Sole Proprietorship, Partnership, Corporation, LLC, LLP, etc.)
  • Any type of legitimate business: manufacturing, wholesale, service, professional service, retail or agricultural
  • The small business' net profit may not exceed $5,000,000 upon the previous two years of application submission.
  • Their net worth may not exceed $15,000,000

Ineligible Businesses

  • Investment, or speculative real estate 
  • Businesses primarily engaged in lending
  • Insurance companies, although independent insurance agencies are eligible
  • Businesses that derive a significant portion of their revenue from speculative operations- commodity traders
  • Illicit business such gambling casinos

Eligibility Requirements

In applying for a 504 loan, businesses must meet each of the following requirements:

  • Property must be either owner-occupied or owned by an eligible passive company. Various lease options exist between the proposed borrower/landowner and the tenant/operating entity. Generally, so long as both entities are otherwise eligible under SBA rules and both either are obligated or guarantee the debt, the project is eligible. If questions concerning this issue should arise, they should be directed to the staff of Capital Access Corporation-Kentucky.
  • Project must, according to SBA guidelines, promote economic development. Generally, this entails the creation or retention of jobs. For every $65,000 that Capital Access Corporation-Kentucky lends, or $100,000 for manufacturing concerns, reasonable projections should indicate that one full-time or part-time job will be created or retained over the next two years. Some business sites and types are exempt from job creation criteria and exceptions are possible.
  • The business must be for-profit and together with all affiliates must average less than $5 million in annual profits and $15 million in net worth. (Alternative, higher size standards are available in certain industries, i.e., manufacturing).
  • Total eligible project cost must be at least $100,000. This includes a minimum Capital Access Corporation-Kentucky loan of $25,000. 

Loan Proceeds of which the 504 may facilitate

The project may include land, no matter how long it has been held. The value of the land will be at cost if acquired within two years of application. If the land was acquired prior to that time, the value also will be at cost unless the small business submits a professional appraisal acceptable to SBA establishing a different value. The appraisal should include the sales history of the property during the last five years. A party other than the borrower, its associates, or the present mortgagee must conduct the appraisal.

Land Improvements
Land improvements integral to the project can be included as eligible project costs except those improvements that are to be paid through special tax assessments or user fees. Examples of eligible land improvements are grading, new streets including curbs and gutters, parking lots, utilities, and landscaping.

Building Construction
All construction costs can be considered part of the 504 project cost. If the SBA business loan involves the construction of a new building, a Borrower may lease up to 40% of the square footage of the rentable property (total square footage of all buildings or facilities used for business operations) on a long term basis, provided that the Borrower immediately occupies at least 60 percent of the rentable property with plans to occupy some of the additional space within three years and plans to occupy all of the remaining space not leased-out on a long term basis within 10 years.

Purchase of an existing Building and Building Improvements
The costs to acquire and improve an existing building are eligible provided that the purchase price is supported by an appraisal acceptable to SBA. For a project that is partially leased out, costs for improvements that are an integral part of the structure of the building are eligible project costs. Examples of these costs would be facade expenditures, heating, electrical, plumbing and roofing costs. However, costs in connection with finishing the interior space to be leased out are not eligible. The Borrower must occupy at least 51 percent of the Rentable Property. The balance of the Rentable Property (49%) may be leased out, on a long term basis, to any third party, if the loan proceeds were not used to remodel or convert the space to be leased out.

Machinery and Equipment
All costs associated with the purchase, transportation, dismantling, or installation of machinery and equipment can be considered part of the project cost. (If the project is only for machinery and equipment, the machinery and equipment has to have a useful life of at least 10 years). The costs of dismantling, moving, and installation of equipment may be included if these costs are part of a more comprehensive 504 project. An example would be heavy or highly calibrated equipment (such as a large printing press) which often requires specialty moving services.

Furniture and Fixtures
Furniture and fixtures can be included in the project as eligible project costs if the dollar amount compared to the total project is minimal (less than 10%) and will not affect the maturity based upon a weighted average useful life.

Professional Fees
Expenditures for professional services and fees directly attributable and essential to the project are eligible. Examples are:

  • Legal expenditures for zoning changes, title searches, insurance, and recording fees
  • Engineering and architectural costs, as well as appraisals
  • Environmental costs like site assessments, phase I and/or phase II studies
  • Interest and points on the interim construction loan
  • Impact and permit fees and utility hook-up fees
  • Title insurance
  • Flood insurance
  • Recording fees
  • Filing fees and title searches
  • Abstract costs
  • Surveys
  • Certified copies of organizational documents
  • Settlement agent's fees
  • Certain other expenses may apply
Contingency Fund
You should consider requiring a contingency amount not to exceed 10 percent of the construction costs to avoid problems in financing cost overruns. If the residual contingency amount does not exceed 2 percent of the debenture just prior to closing, it may be refunded to the small business at the time the debenture is funded. If the contingency residual is in excess of 2 percent, the debenture has to be reduced by the excess amount.

Loan proceeds that the 504 may NOT facilitate

Costs not directly attributable and necessary for the Project may not be paid with proceeds of the 504 loan. These include, but are not limited to, the following:

  • Debt refinancing (other than interim financing)
  • Third-Party Loan fees (commitment, broker, finders, origination, processing fees of permanent financing)
  • Ancillary business expenses, such as: working capital, counseling or management services fees, incorporation/ organization costs, franchise fees and advertising
  • Fixed-asset Project components, such as: short-term equipment, furniture, and furnishings (unless essential to and a minor portion of the Project); automobiles, trucks, and airplanes; and construction equipment (except for heavy duty construction equipment integral to a business' operations and meeting the IRS definition of capital equipment)