Understanding Fees and the Application Process

SBA 504 Loan Program

The SBA 504 Loan Program is a powerful economic development and business expansion tool to assist in providing beneficial terms and rates to help overcome financing challenges and reduce risk.  Benefits of the program include:

  • A below-market, fixed interest rate
  • Financing terms of 10-, 20- and 25-years
  • Up to 90% financing depending on project specifics.

The information below summarizes the costs & fees associated with the 504 loan program.  It is important to note that the long-term interest rate savings typically more than offset the costs of financing and normally end up saving the borrower in total interest expense over the term of the financing.

Loan Processing & Closing Fees Out-of-Pocket
(Due at Closing)
Financed Fees
(% of 504 Amount)
CDC Processing Fee 1.5%
SBA Guarantee Fee 0%
Funding Fee 0.25%
Underwriter Fee 0.4%
Total 2.15%
Plus: Closing Attorney Costs $2500
Third Party Participation Fee 0.5% of Bank Loan

Hard costs for processing the loan include credit reports, flood certification, search & recording costs, environmental assessments, title insurance costs, appraisals and may vary according to financial structure, industry, and other factors.

**If the loan is approved by SBA, but for any reason does not close, the borrower is responsible for paying any hard costs for processing the loan.

Interest Rates

The effective interest rate for a 504 loan is based on the following factors:

Effective Interest Rate Calculation
Note Rate Established monthly at funding
SBA Ongoing Guarantee Fee 0.2475% - 0.6520%
CDC Fee 0.625% - 2%
Service Agent Fee 0.1%
**Total Effective Interest Rate Total of all above items

**Fees above are set annually and may vary from year to year

Rates posted monthly on the Dakota Business Lending website reflect the total “all-in” effective rate.  The actual rate for any loan at funding is a fixed rate for the entire term.  In a rising interest rate & growing inflation market, this helps to protect against rising costs on a portion of the financing project.

Application Process

A 504 project typically follows the process below.

Step 1

Apply

Application/ Processing/ Underwriting

Step 2

Approvals

Bank

DBL

SBA

 

Step 3

Construction

Bank funds 504 portion during construction

(if applicable)

Step 4

Close

Close on 504, Bank Permanent, & Bank Interim

Step 5

Funding

504 takes out Bank Interim

**The bank may choose to use the same note/notes for the construction financing as the final permanent and interim notes.

More information about the 504 loan process can be found here.

Questions?

Contact a loan officer in your area for more information.