SBA 504 Loans vs. SBA Export Loans
To help unstick your decision-making process, we’ll break down and compare the SBA 504 and SBA Export Loans based on the application processes, eligibility requirements, and use of funds for each program.
Comparing the SBA 504 Loan and SBA Export Loan:
While the application process for an SBA Export Loan is similar to the process for other non-SBA Export Loans, the SBA 504 Loan application process isn’t.
With an SBA Export Loan, you simply apply with a participating lender who then forwards your request to the SBA for the eligibility determination. However, due to the way SBA 504 Loans are structured, you’ll work with both a lender and a Certified Development Company (CDC). This means there’s an extra step in the application process because, in addition to securing approval from a lender and the SBA, you must secure approval from a CDC.
As with any SBA-backed loan, both loans are only available to small businesses with:
- Tangible net worth of $15 million dollars or less.
- Net income after taxes (not including carryover losses) of $5 million dollars or less over the previous two years.
Applicants must also have strong credit, minimal existing debt, and a clean financial history.
However, that’s about all these two loans have in common when it comes to eligibility requirements. This stark contrast is mainly due to the differences in the stated goals of each loan program.
For example, 504 Loans are meant to provide business financing to promote growth and job creation. On the other hand, SBA Export Loans are meant to provide working capital to support small businesses’ export sales.
For this reason, you must be an exporter or plan to export goods or services to be eligible for an SBA Export Loan. In addition, to be eligible for a 504 Loan you’ll need to use the funds to create or retain a certain number of jobs or support the SBA’s or CDC’s policy goals.
Use of Funds
There are three different types of SBA Export Loans: Export Express, Export Working Capital Program, and the International Trade Loan Program. Your use of funds will depend on which program you choose. Regardless of the program, though, you’ll generally need to use the funds for export-related expenses.
The SBA 504 Loan program’s use of funds requirements are broader, but not necessarily easier to satisfy. For each $65,000 of your loan amount, you must create or retain one job. If you’re a manufacturer, you’ll need to create or retain one job for each $100,000 of your loan amount.
If your business plan won’t create or retain jobs, you must show that your plan satisfies an SBA public policy goal or a CDC goal. You can find a list of CDC goals and SBA public policy goals here.
Like any other SBA-guaranteed loan, obtaining an SBA 504 or Export Loan is no walk in the park. You’ll need to provide plenty of paperwork for either loan, and both programs have strong restrictions on what constitutes an eligible use of funds.
That said, if either program fits your business financing needs and you think you may be eligible, it’s at least worth a closer look.
Since these loans are backed by the SBA, you’ll receive relatively favorable terms that will be hard to match. Just remember to do your due diligence and talk to an expert to find out if you may be eligible. Otherwise, you could end up spending lots of time to complete the application process only to be disappointed in the end.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.