SBA 504 Loan

SBA 504 Loan Purpose

• Purchase and refinance of fixed assets, such as real estate, parking lots, utilities, and heavy machinery, construction of new facilities, or renovating and converting existing facilities.
  

SBA 504 Loan Program

1. Third Party Lender, Lender, (50%), Community Development Company, CDC, (40%), Borrower (10%)
2. Third Party Lender Loan: Commercial real estate loan in senior position on the collateral
3. CDC
   - 100% guaranteed SBA loan with maximum loan amount of $5.0 million
   - Junior position after Lender
   - Interest rate based on Treasury rates, currently between 5.0% and 7.0%
   - Lender participates in $12.5 million project
4. Beginning October 12, 2011 (until September 27, 2012) borrowers can finance up to 90 percent of the appraised value of available collateral, which could include fixed assets acceptable to SBA (for example:  commercial or residential real property).  This allows borrowers with more than 10 percent equity to be able to obtain additional proceeds to pay for eligible business expenses.
5. In April 2011, SBA expanded the program parameters by allowing any business with a commercial mortgage that is two or more years old to refinance its debt, regardless of maturity.
6. The program is structured like SBA’s traditional 504 loan program: borrowers will work with third-party lending institutions and SBA-approved Certified Development Companies, typically private, non-profit organizations to obtain financing, in a traditional 10%/50%/40% split.  However, the program no longer requires the Third Party Lender to be 50 percent of the Project.  The Third Party Lender amount must be equal to or greater than the SBA amount.  This allows the small business to maximize the amount of long-term, low interest, fixed rate financing available.

SBA 504 Loan - Program Structure

• Lender:                    $1,000,000
• CDC:                       $   800,000
• Borrower:                 $   200,000
• Real Estate Purchase: $2,000,000

Scenario 1: A borrower is purchasing 100% owner occupied commercial building at $2 million and Lender will finance $1 million with 1st lien position for the building.

SBA 504 Loan - Terms & Conditions

• CDC
  - Maximum Loan Amount: $5.0 million
  - Maturity: 20 year for commercial real estate and 10 years for heavy
  Machinery Equipment. No balloon payment
  - Interest Rate: Based on 10 year or 5 year U.S. Treasury

• Lender
  - Regular commercial real estate loan structure
  - Specifics terms and conditions will be proposed per individual loans
  - Minimum 10 year term for 20 year CDC 504 loan, 7 year term for 10 year CDC 504 loan

SBA 504 Loan Fees

• CDC
  - Processing Fee up to 1.5% of CDC loan amount
  - Other Fees may be determined by CDC

• Lender
  - No points loans

SBA 504 Loan - Prepayment Penalties

• Declining prepayment penalties for ½ of the term
• CDC
  - 20 year loan:
  Interest rate x 1/0.9/0.8/0.7/0.6/0.5/0.4/0.3/0.2/0.1 x outstanding balance
  - 10 year loan:
  Interest rate x 1/0.8/0.6/0.4/0.2 x outstanding balance

• Lender
  - Customary prepayment penalties

Program benefits 504 program over 7(a)

• Larger loan amounts with higher LTV at 90%
  Example:
  - $6,250,000 Lender (50%)
  - $5,000,000 CDC (40%)
  - $1,250,000 Borrower (10%)
  - $12,500,000 Total
• Possibly low overall interest rate (CDC and Lender)
• Less closing costs
• Fixed interest rate

Apply for SBA 504 loan or request more information.
Learn more about SBA 7(a) loan