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SBA 504 - Long-term, fixed rate options for growth
Why choose an SBA 504: The goal of the SBA 504 program is to create and retain jobs through long-term financing of real estate and equipment at a fixed, below-market interest rate. Businesses often have difficulty qualifying for traditional financing due to required down payments of 20 percent or more. Loans through the 504 Program can finance 90 percent (504 loan plus third party lender loan) of a project’s cost for qualifying businesses, preserving cash flow during a longer repayment term.
Loan amounts: $25,000 – $5 million (up to $5.5 million in certain cases)
Down payment: Minimum 10%
Eligible projects: The SBA portion of these 504 financing packages may be used for the following fixed-asset projects:
- Real Estate acquisition, construction, renovation or expansion, including the purchase of land.
- Land and site improvements, including grading, streets, parking lots, utilities or landscaping.
- Purchase and installation of new or used machinery and equipment.
- Interest on interim financing.
- Professional fees directly attributable and essential to the project such as surveying, engineering, architectural or legal.
- Business acquisition or partner buyout of the above uses may be eligible.
- Limited debt refinance with expansion.
- Straight refinance of commercial real estate, eligible fixed assets and cash out for business operating expenses.
Eligible businesses: For-profit corporations, limited liability companies, partnerships or proprietorships with net worth not more than $15 million and average net income not exceeding $5 million in the past two years. The project being financed must demonstrate economic impact on its community, primarily through job creation or retention or some public policy objective. Ineligible businesses include investment companies, gambling facilities and lending institutions.
Collateral and security: Mortgage on the land and building being financed; liens on machinery, equipment and fixtures; lease agreements, and personal guarantees from individuals with 20 percent or more ownership in the company (or limited guarantees from those with less than 20 percent ownership). The participating lender receives the first lien on the collateral; SBA holds the second lien.
Terms: 10, 20 and 25 year terms for real estate and long term fixed assets, determined by use of proceeds
Rate: Fixed rate determined at the time 504 loan is funded, 6-8 weeks after project’s completion
Interim Financing: Funding of the 504 portion of the loan package usually takes place within two months after the project is completed. This means that interim financing is required, usually by the local financial institution that holds the first mortgage or lien; the participating lender advances capital as the project begins and is repaid from the proceeds of the SBA debenture.
Contact us to discuss project feasibility and details of this and other loan programs.
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