Ineligible Uses of SBA 504 Proceeds

The following categories of expenditures are ineligible for funding under the SBA 504 Loan Program.

Organization and / or incorporation costs;
Counseling and / or management service fees;
Finders fees, broker fees, commitment fees and application fees;
Working capital needs / requirements, such as the purchase of inventory;
Furniture, fixtures and equipment with a useful life less of than 10 years (although these will be allowed if it can be shown that they are essential to the project and a small percentage of the total project cost);
Automobiles, buses, SUVs, TRUCKS (of all types) and airplanes;
Franchise fees;
Advertising;
Construction equipment (except for heavy duty equipment integral to a business and meeting the IRS definition of capital equipment); and,
Taxes.

Please contact Colorado Lending Source if you have any questions about whether or not an expenditure may be an “eligible” expenditure under the SBA 504 loan program.

Eligible Uses of 504 Proceeds

A small business can only use proceeds from an SBA 504 loan for "sound business purposes" where that phrase is defined as including direct expenditures to acquire, construct or convert a facility for company expansion, such as:

Land, where the value of the land is determined at cost, if acquired within the last two years, or at the appraised fair market value, if owned for more than two years.
Site Improvements, such as grading, paving, landscaping, curb and gutter, etc., although, no more than 5% of total project costs can be for "community" improvements.
Purchase of one or more existing building(s). The Operating Company must occupy at least 51% of the total square footage of the four walls of the project building(s).
Conversion, expansion, or renovation one or more existing building(s), although the cost of improving a tenant spaces / spaces to be leased out can NOT be included in the SBA 504 financing.
Construction of one or more new building(s). The Operating Company must occupy at least 60% of the project, with projections indicating that the Operating Company will need some additional space within 3 years and a reasonable intent that the business will occupy 80% of total space within 10 years. SBA 504 financing can NOT be used to improve tenant space with specialized improvements.

A contingency reserve for construction cost overruns, not to exceed 10% of construction costs, may be included in the calculation of total project costs for the purposes of a 504 Loan application.
Acquire and install machinery and equipment, where these assets have a useful life of at least 10 years AND are at a fixed location.

Furniture, fixtures and equipment with a useful life of less than 10 years CAN be included in mixed use projects where these are "essential to and a minor part of" the total SBA 504 financing project.
Professional Fees directly attributable and essential to the project, such as: title insurance fees; architect fees; engineering fees; any required environmental studies or audits; the cost of a project appraisal; any municipal charges; electricity / gas / water hookup charges; the cost of any survey required to provide clear title; and, related legal and accounting fees.
Repayment of interim financing costs, such as points charged or interest paid to a lender during the interim or construction phase of the project.

Any expenses incurred toward the total cost of a project, other than a land purchase, must be made within nine months of the date that a completed loan application package is received for consideration by a certified development company like Colorado Lending Source.