The SBA 504 is designed to help business owners acquire and expand fixed assets. This primarily applies to real estate, land, and heavy equipment. This means that, for the most part, you cannot use the SBA 504 loan to purchase vehicles. There are some exceptions to this rule, however. Let’s discuss what vehicles you can purchase with a 504 loan, and how you can start a lucrative trucking business with this fantastic resource.
Vehicles That Qualify as Heavy Equipment
Certain vehicles may qualify as heavy equipment and, therefore, be eligible for the 504 loan. These would be things like:
- Cement trucks
- Dump trucks
- Trailer trucks
- Tanker trucks
This does not include smaller vehicles, like pickup trucks, that may be used to transport landscaping equipment or other specialty tools to perform a job.
Starting a Trucking Business with the 504 Loan
You may notice a common ground here when it comes to what vehicles to qualify for the 504 loan: trucks. The trucking industry is a multi billion dollar affair, thanks to our dependence on them for virtually everything, from agriculture to e-commerce. In fact, trucks contributed over 700 billion dollars to the US Gross Domestic Product in 2023!
It’s no surprise, then, that trucking companies are one of fastest growing industries, with a projected compound annual growth rate of 5.9% by 2026. Did you know that they are also one of the top five industries to utilize the SBA 504 Loan? With up to $5.5 million (more for energy saving endeavors), flexible terms, and myriad applications, the SBA 504 can help you start a trucking company or expand an existing one.
What Can You Purchase for Your Trucking Company with an SBA 504 Loan?
The SBA 504 loan may be used to purchase fixed assets for your trucking company. This includes the trucks themselves. In addition to your trucks, you can use the SBA 504 for the following:
- Acquisition of Real Estate: Trucking businesses often require operational space for parking, maintenance, and administrative purposes. The loan can be used to purchase or construct facilities, warehouses, or parking lots to house the fleet and facilitate maintenance operations.
- Equipment and Maintenance Costs: Apart from the vehicles, funds from the loan can be allocated to acquire necessary equipment, such as loading/unloading machinery, diagnostic tools, and vehicle maintenance supplies. This investment ensures the smooth operation of the fleet, reducing unforeseen downtime and costly repairs.
- Expansion and Growth: As the business grows, additional trucks, trailers, or facilities might be needed. The flexibility of the SBA 504 loan allows for future expansion or upgrading of assets to meet increasing demands in the trucking industry.
Review of SBA 504 Process
SBA 504 loans are facilitated by Certified Development Companies, or CDCs. They will cover up to 40% of your loan. A conventional bank loan will provide 50% of the project cost, and you, the borrower, will provide 10% in a down payment.
Repayment terms and interest will depend on the project itself. Real estate projects can qualify for between 20 and 25 years, while equipment generally has a 10 year repayment term. Current interest rates are between 7.1 and 7.3 percent.
In order to qualify for the SBA 504 loan, you must meet the following general criteria:
- Be a for-profit business within the United States
- Have an average net worth of less than 15 million dollars and an average net income of 5 million dollars or less for the past two years.
- Meet the SBA definition of a small business
- Demonstrate the ability to repay the loan (via financial statements, tax documents, etc.)
- Meet job creation criteria and other public policy goals set forth by the SBA
Start a Trucking Company in Colorado
If you are ready to start a new trucking company or expand an existing one in the state of Colorado, CEDCO is your local certified development company (CDC). We have helped businesses grow all over the state for the last thirty years, and we look forward to working with you to achieve your dream. Call or go online today to schedule a free consultation.