— Amy Waite, Senior Loan Officer, Ally Dakota Development
FY2027 SBA 504 fee changes put renewed focus on manufacturing, the food supply chain and rural communities
If you are a community banker in South Dakota, I’m sure you’ve taken this phone call from a commercial client: “We’re out of room.”
Maybe it’s a manufacturer who needs more production space. Maybe a longtime business owner finally has the opportunity to purchase the building they’ve been renting. Or maybe a new piece of equipment would allow a company to increase production, become more efficient or take on additional business.
Growth creates these necessary conversations. And when a business is ready to take that next step, the financing may get complicated.
The cost of commercial real estate, construction and equipment means even a fairly straightforward expansion can quickly become a significant project. The business owner needs to think about how much cash to put into the project while keeping enough working capital available to run the business. The bank needs to consider collateral, loan concentrations, lending limits and overall exposure.
Sometimes the question isn’t whether it’s a good project. The question is simply: How do we structure the financing in a way that works for the business and for the bank?
That question may be especially timely heading into the new federal fiscal year.
Beginning October 1, 2026, the U.S. Small Business Administration is making a notable change to SBA 504 loan fees. For fiscal year 2027, SBA is waiving both the upfront guaranty fee and annual service fee for qualifying manufacturers, certain businesses within the food supply chain and businesses located in rural areas. The waiver also extends to qualifying 504 debt refinance projects, both with and without expansion.
For South Dakota, those three categories—manufacturing, food supply chain and rural businesses—are especially significant.
We have manufacturers investing in facilities and equipment throughout the state. Agriculture and the businesses that support our food supply chain are fundamental to our economy. And we certainly understand the importance of a strong business making a long-term investment in a rural community.
There is still one important piece of the announcement needing clarification. SBA has not yet provided final guidance on how a “rural area” will be defined for purposes of the fee waiver. Until that guidance is available, lenders and businesses should not assume a particular location will qualify.
Even without that clarification, the intent behind the new fee structure is clear: SBA is reducing the cost of 504 financing for businesses making certain types of long-term investments.
And those investments can have an impact well beyond the business making them.
Think about what happens when a South Dakota manufacturer purchases a larger facility and adds another production line. Or when a rural business buys the real estate it has occupied for years. Or when a food-related business invests in equipment allowing it to increase capacity.
That investment can mean jobs retained or created, additional business for local suppliers and contractors, a stronger tax base and another business making a long-term commitment to its community.
The challenge, of course, is getting the
project financed.
This is where community banks have always been particularly good at what they do. They know their customers. They understand the local market.
They know the history behind the financial statements and, often, they know about an expansion long before there is a purchase agreement or construction contract.
But supporting the customer doesn’t
necessarily mean the bank has to finance the
entire project alone.
For larger fixed-asset projects, bringing another financing partner to the table can give both the borrower and the lender more flexibility. The SBA 504 portion can be up to $5 million, or $5.5 million for certain qualifying projects. That can make 504 a useful tool even when the total project cost is substantial.
Its traditional structure generally combines approximately 50% financing from a private-sector lender, up to 40% through an SBA-backed debenture and at least 10% from the borrower. Certain projects require additional borrower equity.
That structure can help a business preserve cash for operations rather than putting a significant amount of its liquidity into real estate or equipment. On the bank side, sharing the financing can help manage exposure while allowing the lender to maintain the customer relationship and first lien position.
That may be the bigger takeaway from SBA’s FY2027 fee announcement.
Yes, lower fees are good news for qualifying businesses. But perhaps the announcement also gives lenders another reason to take a fresh look at the projects coming across their desks, particularly in manufacturing, the food supply chain, and our rural communities.
When a good customer says, “We’re ready to grow,” having more financing options available can make it easier to find a way forward.
And sometimes getting the deal done simply means asking:
Who else should we bring to the table?
South Dakota’s community banks have a long history of finding ways to support the businesses and communities they serve. As projects get larger and financing needs become more complex, partnerships will continue to be an important part of that work.
Because at the end of the day, economic development isn’t about a particular loan program.
It’s about finding a way to help a good business make its next investment in South Dakota.