SBA 504

Small Business Administration backed loans provide small business owners with more financing opportunities through higher leverage, flexible underwriting and lower down payment requirements.

Capital Development provides a first mortgage for 50% of project costs and the SBA provides a second mortgage for 30-40% of project costs.

Summary:

The SBA 504 Loan Program
SBA 504 loans provide small business owners with the same sort of attractive, long-term, fixed rate financing available to larger businesses. Funds can be used to buy a facility, to buy land and build a new building, to renovate or expand an existing structure, and / or to purchase equipment and machinery for a business.

What Businesses Are Eligible For SBA 504 Loans?
The program is intended for small and medium-sized businesses. Large businesses, those with a net worth of more than $7.5 million or an average income, after taxes, of more than $2.5 million for the last two years, may be too big to access the program.

What Is The Loan $$$ Limit?
Normally, the 504 loan is limited to 40% of the total project up to a maximum of $1,500,000. However, “under-served” business categories (i.e. rural based, women-owned, veteran or minority-owned businesses; projects located in enterprise zone; and businesses that export), can secure up to $2,000,000 in SBA 504 funds, and small manufacturing firms can apply for up to $4,000,000 in SBA 504 loan program assistance.

What Are The Interest Rates, Terms and Costs?
Interest rates on the 504 portion are set by the market each month when a 504 bond is sold in New York. When the bond is sold, the interest rate is fixed for the life of the loan. The term of the 504 loan may be either 10 years (machinery and equipment loans) or the more common term of 20 years (real estate loans). Partner lenders / bankers who provide approximately 50% of the total financing project, will charge their own market interest rates. To ensure that the program does not cost taxpayers anything, a borrower will pay fees that roughly approximate the cost of the program -- these consist of a one-time origination fee of 2.24% on the SBA 504 loan, plus an attorney closing fee of $1,500. These fees are usually financed as part of the total SBA 504 loan so borrowers don’t have to come up with additional funds at closing. Other fees are included in the interest rate the borrower pays, although these are all fully disclosed up front.

What Collateral is Required?
Generally, the assets of the project being financed are adequate collateral for the purposes of the 504 Loan Program. Personal guarantees of the principal owners of the business will be required. In rare and exceptional cases, personal assets may be attached.