Business owners seeking long-term, low interest financing for hard costs such as land, buildings, or equipment can benefit from the Small Business Administration’s (SBA) 504 loan program.
The 504 program was designed to provide another lending avenue for small businesses that would promote growth and advancement. Because assets like land or equipment act as collateral for the loans, the SBA is able to offer low, fixed interest rates, currently around 2.6 percent. 10, 20, and 25 year terms are available, with a minimum loan amount of $25,000 and a maximum of $5 million.
In order to secure 504 funding, however, borrowers must work with a certified development company (CDC). CDCs are nonprofit corporations that are certified and regulated by the SBA, with the aim of promoting economic development in their respective regions.
There are four CDCs in South Dakota, but Dakota Business Finance (DBF) has ranked first in the state since 2009 for sheer volume of processed loans. In 2019, DBF did 26 loans, 22 of which were for South Dakota businesses.
Lynne Keller Forbes has been the executive director for the South Eastern Council of Governments (SECOG) since 2001, and she led its efforts to create both the South Eastern Development Foundation (SEDF) and DBF.
Keller Forbes built the SEDF from the ground up with the intention of filling gaps in economic development funding that banks couldn’t manage.
“What we found when we created SEDF was that a lot of the projects we were working with were utilizing 504 loans as well,” she said. “So then in 2006, we created Dakota Business Finance.”
504 loans are structured so that the SBA covers 40 percent of the total project costs, the bank covers up to 50 percent, and the borrower typically covers 10 percent. In some cases, a borrower may be required to contribute up to 20 percent.
While the 504 program fills a need for projects that aren’t bankable, Keller Forbes emphasizes that it’s not limited to those clients.
“Because of the rates and the long-term fixed financing, people that are really business savvy take advantage of the program too,” she said.
DBF serves the entire state of South Dakota as well as select counties in southwestern Minnesota, northwestern Iowa, and northeastern Nebraska. While DBF serves a wider geographic area than some of the other CDCs, Keller Forbes says their focus is local.
“We serve the whole state, and we’ll do whatever we can to make those deals successful, but the ones near and dear to our hearts are in this area,” said Keller Forbes. “We love Sioux Falls. The majority of our portfolio is here, and we see a lot of our lenders and clients around town.”
Getting started with Dakota Business Finance
When it comes to the application and processing of 504 loans, Keller Forbes emphasizes that the timeline is driven by the borrower.
“They should definitely come in with a business plan and projections,” she said. “If they don’t, we’ll just send them to the Small Business Development Center (SBDC).”
The SBDC, which offices out of Zeal, can help business owners with developing a plan and preparing essential documents. They can also assist with items that are often overlooked, such as insurance, worker’s compensation, or benefits.
“Good entrepreneurs are not always good business people,” Keller Forbes said. “We might advise them to hire a bookkeeper, form a corporation, or just gain an awareness of what they’re not good at and surround themselves with a team.”
Essentially, Keller Forbes says that DBF needs to see that a business owner is all in. If they’re well-prepared, the loan can be written up in a week. If more preparation is necessary, that timeline can be drawn out over months.
Current interest rates are available on DBF’s website, but it’s important to note that they may fluctuate before the terms of your loan are finalized.
Keller Forbes also highlights the relationship aspect of working with DBF. Her team is committed to maintaining strong connections with both lending partners and borrowers.
“There’s a misconception that because it’s a government program it’s going to be a lot more work, but we’ve really worked to gain that expertise,” she said. “Once a lender does one or two loans with us, they keep coming back.”
When it comes to borrowers, DBF maintains long-term connections and relationships because they’re responsible not only for the underwriting of the loan package but also for its servicing.
“We’re doing ten times the loan volume of other CDCs, and we’ve got to have the staff for that,” Keller Forbes said. “We’re required to do an annual site visit during that first year of a loan, and we have one dedicated team member who does nothing but servicing and closing.”
If you’re interested in pursuing a 504 loan through DBF, you can begin your application online. When you’re ready, their staff can assist with finalizing, submitting, and processing the application.
“It all goes back to relationships, experience, and service,” she said. “It’s that whole package of making sure you can get the loan approved and making sure you can close the deal.”
For more information, visit dakotabusinessfinance.com.