Unlock hundreds more features
Save your Quiz to the Dashboard
View and Export Results
Use AI to Create Quizzes and Analyse Results

OR
Sign inSign in with Facebook
Sign inSign in with Google
Quizzes > Quizzes for Business > Finance

Take the SBA 504 Loan Knowledge Assessment Quiz

Gauge Your Understanding of SBA 504 Loans

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art displaying questions for SBA 504 Loan Knowledge Assessment Quiz

Ready to take the SBA 504 loan quiz? This SBA 504 Loan Knowledge Assessment Quiz is perfect for small business owners, finance students, and loan officers seeking to master 504 financing essentials. With 15 multiple-choice questions covering eligibility, structuring, and compliance, participants will gain insight into real-world lending scenarios. The interactive format can be freely modified in our editor to customize question sets. For related practice, try the Loan Case Management Knowledge Test and the Mortgage Loan Processing Knowledge Test , then explore more quizzes to broaden your skills.

Which of the following is a key eligibility criterion for an SBA 504 loan regarding business size?
Net tangible worth of $15 million or less and average net income after taxes of $5 million or less
Annual revenue exceeding $20 million
Net tangible worth over $20 million
Nonprofit status with any revenue level
The SBA 504 program requires that applicants have a net tangible worth of $15 million or less and average net income after taxes of $5 million or less. This ensures the business qualifies as a small business under SBA definitions.
What portion of the project cost is typically financed by the certified development company (CDC) under an SBA 504 loan?
40%
50%
10%
90%
Under the SBA 504 structure, a CDC generally finances 40% of the eligible project cost. The private lender covers 50% and the borrower provides a minimum 10% down payment.
What is the minimum down payment percentage required from the borrower in a standard SBA 504 loan?
10%
5%
20%
15%
Borrowers must contribute at least 10% equity toward the project cost in a standard SBA 504 loan. Higher equity may be required for certain special purpose properties.
SBA 504 loans are primarily intended to finance which of the following?
Fixed assets such as real estate and heavy equipment
Working capital
Inventory purchases
Accounts receivable
The SBA 504 program focuses on fixed asset financing, including land, buildings, and equipment. Working capital and inventory are not eligible uses under this program.
What is the maximum term for the CDC portion of an SBA 504 loan used to purchase real estate?
25 years
5 years
10 years
40 years
The CDC portion of an SBA 504 loan for real estate typically has a maximum amortization term of 25 years, providing long-term financing for property purchases.
Which party typically holds the first mortgage in an SBA 504 loan arrangement?
Private lender (bank)
Certified Development Company
Small Business Administration
Borrower
In a 504 transaction, the private lender holds the first mortgage covering 50% of the project cost. The CDC holds the second mortgage for 40% of the cost.
How much equity injection is generally required from a borrower when financing a special purpose property under SBA 504?
15%
5%
30%
10%
For special purpose or single-use properties, the SBA often requires 15% borrower equity instead of the standard 10%, reflecting higher risk on unique assets.
Can SBA 504 funds be used to refinance existing debt?
Yes, if the loan meets SBA refinancing requirements and demonstrates job creation
No, refinancing is never permitted
Yes, but only for equipment purchases
Yes, with no additional conditions
SBA 504 can refinance existing debt provided the project meets strict SBA criteria, including demonstrating job creation or public policy goals. It is not unlimited or unrestricted.
What is the maximum CDC debenture amount available to most borrowers under SBA 504?
$5 million
$4 million
$6 million
$5.5 million
Most borrowers can receive a CDC debenture up to $5 million. Small manufacturers may qualify for up to $5.5 million in certain cases.
For a $2 million project under an SBA 504 loan, how much does the private lender typically finance?
$1,000,000
$800,000
$400,000
$1,200,000
The private lender usually provides 50% of the project cost. For a $2 million project, this equates to $1,000,000 funded by the lender.
If the CDC portion of a 504 loan is amortized over 25 years at a fixed rate, which payment structure is used?
Fully amortizing level payment
Interest-only payments with balloon principal
Variable-rate payments
Seasonal payment schedule
CDC loans in the SBA 504 program use a fully amortizing level payment structure, meaning principal and interest are repaid in equal installments over the loan term.
Which of the following is NOT an eligible use of SBA 504 financing?
Working capital
Building construction
Land acquisition
Heavy machinery purchase
Working capital is expressly ineligible under SBA 504, which focuses on financing long-term fixed assets like land, buildings, and equipment.
What is one key compliance requirement regarding job creation for SBA 504 loans?
One job must be created or retained for every $65,000 financed by the CDC
One job per $100,000 financed by the bank
No job creation or retention is required
Two jobs for every $50,000 financed by the borrower
SBA 504 borrowers must create or retain one job for every $65,000 of debenture financing (or $100,000 for small manufacturers), ensuring economic impact.
Which key term describes the sale of securities that fund the CDC portion of an SBA 504 loan?
Debenture sale
Equity offering
Bond issuance
Mortgage origination
The CDC portion is funded through the sale of SBA-guaranteed debentures in the capital markets. This process is called a debenture sale.
Under SBA 504, what designation must an intermediary hold to process loans?
Certified Development Company
Preferred Lender
Direct Lender
Community Advantage Lender
Only entities designated as Certified Development Companies by the SBA can process and service 504 loans, acting as the CDC in transactions.
If a 504 project uses $500,000 at 5% interest for 20 years from the bank and $400,000 at 3.5% interest for 25 years from the CDC, what is the weighted average interest rate on the combined $900,000?
4.33%
4.00%
3.80%
5.00%
The weighted rate is calculated as [(500k×5%)+(400k×3.5%)]/900k = (25k+14k)/900k = 39k/900k = 4.33%. This reflects the blended cost of capital.
A borrower includes a software license purchase in a 504 project. How does SBA treat this intangible asset?
It is ineligible because SBA 504 only finances tangible assets
It qualifies if the license cost is under $50,000
It must be amortized over 10 years
It can be financed up to 10% of the project
SBA 504 loans fund tangible fixed assets like real estate and equipment. Intangible assets such as software licenses are not eligible.
A company has a net tangible worth of $16 million and average net income of $6 million for the past two years. Are they eligible for SBA 504 based on size standards?
No, they exceed both SBA net worth and income limits
Yes, because income is within limits
Yes, if they demonstrate job creation
No, because net worth is too low
The SBA 504 size standard caps net tangible worth at $15 million and average net income at $5 million. This company exceeds both thresholds and is ineligible.
Under SBA 504, retained jobs can count toward compliance if:
The project meets public policy goals such as assisting rural or minority businesses
The borrower retains at least 90% of pre-loan staff
Jobs are retained only for one year
They pay employees above the national average wage
SBA permits counting retained jobs when the loan meets certain public policy goals, like aiding rural, minority, or veteran-owned businesses.
Which feature distinguishes SBA 504 loans from SBA 7(a) loans?
Long-term fixed rates for acquisition of fixed assets
Availability of working capital financing
Higher collateral requirements
Shorter maximum maturity
The SBA 504 program provides long-term, fixed-rate financing strictly for fixed assets. In contrast, 7(a) loans often have variable rates and broader use cases.
0
{"name":"Which of the following is a key eligibility criterion for an SBA 504 loan regarding business size?", "url":"https://www.quiz-maker.com/QPREVIEW","txt":"Which of the following is a key eligibility criterion for an SBA 504 loan regarding business size?, What portion of the project cost is typically financed by the certified development company (CDC) under an SBA 504 loan?, What is the minimum down payment percentage required from the borrower in a standard SBA 504 loan?","img":"https://www.quiz-maker.com/3012/images/ogquiz.png"}

Learning Outcomes

  1. Identify key eligibility criteria for SBA 504 Loans
  2. Analyse the loan structure and funding components
  3. Evaluate appropriate uses of 504 financing in business scenarios
  4. Apply calculation methods for principal and interest payments
  5. Demonstrate understanding of program requirements and compliance
  6. Master key terms and definitions related to SBA 504 Loans

Cheat Sheet

  1. Eligibility Criteria - To be in the SBA 504 club, your biz must be U.S.-based and for-profit, with a tangible net worth under $20 million and average net income below $6.5 million after taxes over the past two years. Think of it as the secret VIP handshake to access friendly financing. Ready to check your eligibility and kickstart your growth? sba.gov
  2. Loan Structure - Typically, financing splits into a 50% share from a private lender, 40% from a Certified Development Company (CDC), and a 10% equity contribution from you. This trio forms your project's dream team, powering everything from construction to equipment. Understanding who chips in what helps you plan your budget like a champ. Wyoming Capital Access
  3. Use of Funds - SBA 504 loans shine when you need to purchase or construct buildings, acquire land, buy long-term machinery, or spruce up existing facilities. It's your golden ticket to invest in tangible assets that drive productivity and long-term growth. Picture yourself upgrading equipment that turbocharges your operations! sba.gov
  4. Ineligible Uses - Hold your horses - these loans can't be used for working capital, inventory, debt consolidation, or rental real estate investments. Trying to swipe funds for day-to-day expenses or stockpiling goods won't fly. Know the playbook to avoid nasty surprises later. sba.gov
  5. Repayment Terms - You choose 10-, 20-, or 25-year terms, with interest rates pegged to a small premium over current 10-year U.S. Treasury yields. Longer terms mean friendlier monthly payments but more total interest, so balance cash flow with cost. This flexibility lets you pick the plan that fits your budget like a glove. sba.gov
  6. Job Creation Requirement - To keep things public-friendly, borrowers must create or retain jobs or meet other policy-driven goals. Think of it as growing your business while giving back to the community. Nail these targets, and you'll shine in the SBA's spotlight! NerdWallet
  7. Prepayment Penalties - If you pay off your loan in the first 10 years, prepayment penalties apply, shrinking each year and disappearing after year ten. This protects lenders and helps keep overall rates low. Plan your early payoffs wisely to dodge extra fees. Investopedia
  8. Collateral Requirements - The assets you finance typically serve as collateral, though the SBA may request additional security in special cases. It's a safety net that keeps everyone comfortable lending. Always catalog your assets early to breeze through underwriting! NerdWallet
  9. Down Payment Variations - Standard down payments sit at 10%, but startups or special-purpose properties might need 15%, and startups buying special-purpose sites may pony up 20%. Think of it as leveling up to prove your commitment. Factor these variations into your cash-on-hand game plan. 504savvy
  10. Application Process - You'll team up with a CDC, provide a treasure trove of financial docs, and demonstrate solid repayment chops. Think of it as a deep-dive interview proving you're loan-worthy. Organize your paperwork early for a smooth sail through approval! NerdWallet
Make a Quiz (FREE) Copy & Edit This Quiz Create a Quiz with AI

Finance Quizzes

Powered by: Quiz Maker