It Pays to Go Green: SBA 504 Lending Limits Expanded for Real Estate Projects that Incorporate Green Energy Initiatives
The Small Business Administration’s (SBA) 504 lending limits have expanded for businesses that implement green energy initiatives, offering new opportunities for business owners focused on growth, job creation, and environmental sustainability. With the 504 program, eligible companies can access up to 90% financing at below-market rates with no future interest rate fluctuations and choose from 10-, 20- and 25-year amortization terms. The SBA’s CDC/504 loan offers up to $5 million in financing, which typically represents 40% of the total project cost.
The Green Loan Program allows business owners to qualify for additional CDC/504 financing when they meet energy efficiency requirements. The second mortgage limit is increased to a maximum of $5.5 million per project with no limit on the first mortgage amount, essentially removing the limit on the total project cost by bypassing traditional SBA lending caps. There is also no limit to the number of CDC/504 loans a business can take out or the aggregate dollar amount outstanding when energy efficiencies are implemented. This means that a business owner with an existing $5 million SBA 7(a) loan or a CDC/504 loan could still be eligible for another CDC/504 loan to purchase a building. To qualify, the business owner must simply implement initiatives like installing solar panels, LED lighting systems, energy-efficient windows, or optimized heating and cooling systems.
The program is not without specifications. Eligible businesses must either produce or reduce energy to meet set energy requirements. To reduce energy, the business must replace an existing location where the energy used at the new location will be at least 10% lower than that of the current location. Note that the 10% reduction pertains specifically to energy consumption, not merely a decrease in utility costs. For energy production, the business can either replace an existing location or open an additional location. The business would need to produce at least 15% of the building’s energy needs with project improvements. Possible approaches to reach these goals include investing in energy-efficient building design, integrating renewable energy sources, retrofitting existing buildings to improve energy efficiency, and conducting energy audits and certifications to identify energy shortfalls.
Debating whether to incorporate sustainability into your business strategy is no longer an option as more and more people are choosing to support organizations that espouse sustainability and business practices that minimize environmental impact. The Green Loan Program is rewarding business owners that value environmental stewardship with a healthier planet and more economic opportunities. If you’d like to hear more about the SBA 504 Green Loan Program and how it can benefit your business, Preferred Capital Funding guarantees a knowledgeable and proactive broker who is dedicated to helping nature and businesses thrive. The environment and your wallet stand to gain.
