SBA 504 Green Loan Program Explained

Car wash investors looking to grow and expand their operations through acquisition, conversion or construction from scratch may qualify for additional funding from the SBA if they go green. Car wash owners can benefit the environment and the bottom line with fixed-rate financing under the SBA’s 504 Green Loan Program. Under the program, experienced car wash operators can finance up to 85%. new investors up to 80% can be financed. Loan terms range from 10 years for equipment to 25 years for new construction and acquisitions.

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Growing from 1 to 10

Instead of being limited to financing one or two locations under the SBA’s standard programs, business owners can finance 10 or more washes with the SBA’s Green 504 Program. Unlike traditional SBA 7(a) and 504 loan programs capping your loan limit at $5 million, the latest version of the SBA’s 504 Green Loan Program increases the SBA guarantee limit to $16.5 million. This change increases the maximum borrowing capacity to more than $40 million.

But how does a $16.5 million increase in collateral equate to $40 million in loans?

The key to why a person can borrow more is to understand the SBA 504 loan structure. A 504 loan is actually a combination of two loans. The 504 loan “package” has a conventional bank loan in the first lien position and an SBA loan in the second lien position. The conventional loan represents 50% of the total project costs. The SBA loan is 30% for new investors or 35% for experienced operators. The reason you can borrow more is because the SBA guarantee only counts against the SBA 504 portion of the loan and does not count against the conventional loan portion.

Long term fixed rates

As mentioned above, the SBA 504 Green Program consists of two loans. The conventional loan is amortized over 20 or 25 years and is usually fixed at three or five years. The actual benefit is the rate from the SBA portion. The SBA 504 loan, which is backed by a Certified Development Company (CDC), is fixed for the entire term of the loan, which is typically 20 or 25 years. Not only is it fixed, but it is fixed at a below-market rate. As of February 2020, the 25-year rate was set at 3.46%.

How to qualify for the Green 504

The general requirements are that companies must:

  • be lucrative
  • Be 51% or more owner occupied
  • Have a tangible net worth of less than $15 million
  • Have a net income of less than $5 million.

For new construction, your business must be at least 60% occupied upon completion and plan to be 80% occupied within 10 years. New car washes are eligible.

New investors go green

A common way for new investors to qualify for green certification is to produce 15% of their own power. Solar panels on your rooftop or on top of empty canopies are the most obvious solution.

You can produce the energy in multiple ways, using a combination of common renewable energy sources, such as solar, wind and thermal. The cost associated with installation can be included in the loan amount. The most prevalent method used to generate renewable energy is by adding solar panels. Currently, this equates to an investment of around $150,000 in solar energy.

As mentioned above, if you do not currently own a building and do not have a baseline for energy consumption, the SBA requires that you produce enough of your own energy to account for 15% of your total consumption, since you do not have an existing building to point to. reference against.

Existing operators converting to green

Existing operators can purchase or build a building that uses 10% less energy than it is currently using. It’s important to remember that the 10% reduction is in energy use, not in dollars saved on lower utility bills. To verify reduction in energy consumption and/or renewable energy production, borrowers must have an energy audit completed by a qualified energy consultant.

If you currently own a car wash and are looking for convert or remodelYou can also adapt your existing installation and include technologies that reduce your current consumption by 10% (frequency drives, LED lighting, solar, etc.).

Drawbacks of SBA 504 Loans

There are several disadvantages to this type of loan, including the following:

  • Separate Construction Loan: Unlike the SBA’s 7(a) loan program, you’ll need a separate construction loan for new construction projects. The 504 loan begins once construction is complete. It’s not a problem if your lender offers construction loans. If the financial institution does not offer construction loans, you will have to incur additional expenses and additional time to obtain a separate construction loan.
  • Moment: The SBA 504 loan approval process takes longer than the conventional or SBA 7(a) approval process. This is because you potentially have three different entities (conventional lender, SBA/CDC, and construction lender) backing the transaction. The 504 loan process may take an additional 30 days or more.
  • Prepayment/assumption: The SBA 504 portion of the loan has a 10-year prepayment penalty. If you are looking to change your wash, the 504 prepayment penalty may not be ideal for your situation. That said, SBA 504 loans are assumable with the approval of the lender and the SBA/CDC.
  • Experience counts: Finding a lender with experience with green 504 loans is important. Very few lenders offer green 504 loans for car washes. Limited funding sources can cause unwanted delays in your search for a car wash loan.

Benefits of SBA 504 Green Loans

However, these loans also have several benefits in addition to going green, including:

  • Greater capacity: Green certification allows multiple SBA loans for the same applicant.
  • Larger loans: The green 504 is a second mortgage that can cost up to $5.5 million per project. Therefore, the combined loans (first conventional and second SBA) for a project can exceed $13.3 million.
  • Remove restrictions: The usual SBA 504 job creation/retention requirement is waived when you use the SBA 504 green loan. This is very useful for businesses with few employees, such as quick exterior car washes.
  • Refinancing Available: The 504 loan can be used to refinance debt at higher rates/shorter terms.
  • Medium businesses are eligible: Larger businesses now qualify for the 504 green loan. The maximum tangible net worth has been increased to $15 million. The net income limit was increased to $5 million.
  • Includes indirect costs: Associated fees and soft costs can be financed into the loan (architecture and engineering fees, appraisals, closing costs, etc.). However, working capital and inventory are excluded. Therefore, plan to have extra cash to cover your working capital and inventory needs.
  • Attract customers: Going green can improve your brand image. According to a 2014 Nielsen study, 42% of North American respondents say they are willing to pay more for products and services provided by companies committed to positive social and environmental impact.1 Four in 10 said they had bought an organic product in the last six months.
  • Employee retention: Green can help with employee retention. Today, wellness is an important value in the workplace. The new generation of employees cares about a company’s investment in sustainability. Beyond the financial benefits, many employers want to support the cognitive and emotional well-being of their employees.
  • Fiscal benefits: You may receive tax incentives. The federal government and many state and local utilities have tax incentive plans for installing green renewable energy systems and some significant first-year rebates that can help offset some of the costs of installing renewable energy. The current federal tax credit is 30% as of 2019.

North Carolina State University has compiled a comprehensive “State Incentives Database for Renewables and Efficiency” detailing federal and local incentives by state for all types of renewable projects. You can access the rebates and incentives database at

grow with green

In conclusion, with the rapid expansion in the car wash market and limited conventional loan options, the SBA 504 Green Loan Program may be a way to start or grow your car wash business. The high loan-to-value ratio, below-market fixed rates, and long loan terms make the program attractive to almost anyone in the car wash industry.

For additional information on the SBA 504 Green Loan Program, please feel free to contact Michael Ford, CEO of Coast Commercial Credit™, at 1-800-400-0365 or [email protected]


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