Financing Oilfeild Services Business with the SBA 504 Program

The government is offering lower rates, no-fee contracts and other incentives to support small business growth. While incentives sound great, do your due diligence even with a government-backed loan. Before working with Small Business Administration (SBA) or a private lender, compare fees and terms, ask questions, research financing options and know your oilfield services business needs before signing on the dotted line.

Introduction to the 504 Program

The SBA's 504 Program provides companies with long-term, fixed-rate financing for property-related funding such as buying property, refinancing mortgages or building or growing facilities.

In fixed-rate financing, the annual percentage rate stays the same for the entire loan's contract. Fixed-rate financing usually involves the borrower paying 10 percent of the total price of the loan.

The 504 Program cannot apply to inventory, working capital, cash flow, paying debt or refinancing aside from mortgage refinancing.

Businesses need to be making a profit to qualify for the 504 Program and fall within the SBA's company size requirements. In the two years before the loan request, small businesses need to have an average net income less than $2.5 million after taxes and a tangible net worth under $7.5 million. Also, ask for a side-by-side comparison of 504 Program financing and a conventional commercial mortgage loan.

Other 504 Financing Information

Companies applying for the 504 Program may have to deal with a 60- to 90-day delay in the time between closing and receiving the funds. This will require "gap financing" to cover this time frame. Typically, the 504 Program lender does the gap financing, which could also involve more fees and requirements.

Another thing to know about is that delays can be dangerous and expensive when it comes to government loans using stimulus money. When the loan doesn't arrive in time, the business could face late penalty costs.

To learn more about the 504 Program, contact an SBA office near you. The office can also point you to certified development corporations (CDC), which are authorized government partners in the 504 Program. These nonprofits in good standing want to help small businesses growth. The SBA also has data on the CDCs that issue more 504 loans.

Research all fees, terms and time frames before considering any loan or financing program whether it's with the government or a private lender http://oilfieldworkingcapital.com/blog/considering-specialty-lender. Another key thing to remember with any SBA loan is that your oil and gas company and loan need to comply with SBA rules or prepare for deep penalties.