SBA 504 Loan Program

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SBA loan programs can help qualified businesses obtain financing even when their collateral may not meet conventional lending standards. Having the experience and the right relationships with a wide variety of capital sources allows ALB Commercial Capital to expedite the process and approval of SBA loans. The information below is an overview of the SBA 504 loan programs features.

SBA 504 Loan Program

What is the 504 Loan Program?

The SBA 504 Loan program is a powerful economic development loan program that offers small businesses another avenue for business financing, while promoting business growth, and job creation. This program is a proven success and win-win-win for the small business, the community and participating lenders.

The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA’s community-based partners for providing 504 Loans.

About CDCs

A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development.

504 Loan Structure

504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.

Interest rate options include variable, 3 and 5 year fixed rate options for the Conventional 1st Deed of Trust/Mortgage. Your interim loan typically mirrors 1st Deed of Trust/Mortgage. For your CDC/SBA 2nd Deed of Trust/Mortgage your rate is tied to the market rate for the 5 and 10 year US Treasury with rates fixed at the time of debenture funding for the life of the loan. Fees total approximately 3% of the SBA Debenture and may be financed with loan proceeds. The majority of these fees are not currently being charged as part of the American Reinvestment and Recovery Act.

Key Program Features

  • Typical project
    • 50% LTV Conventional 1st Deed of Trust/Mortgage
    • 30 – 40% SBA/CDC 2nd Deed of Trust/Mortgage (depending on property type)
    • 10 – 25% equity injection (depending on property type)
    • A maximum loan amount of
      • $4,000,000 1st Deed of Trust/Mortgage
      • $1,500,000 2nd Deed of Trust/Mortgage when meeting the job creation criteria or a community development goal
      • $2,000,000 2nd Deed of Trust/Mortgage when meeting a public policy goal
      • $4,000,000 2nd Deed of Trust/Mortgage for small manufacturers

*Up to $6,000,000 of aggregate financing

  • Maturity and Amortization up to 25 years for conventional 1st Deed of Trust/Mortgage, up to 120 day term with interest only payments for the Interim Note and up to 20 years for the CDC/SBA 2nd Deed of Trust/Mortgage
  • Maximum LTV Multi-Use of up to 90% (50% Conventional 1st/40% CDC/SBA 2nd / 10% equity injection
  • Limited or special purpose real estate up to 85% LTV (50% Conventional 1st/35% CDC/SBA 2nd/15% equity injection)

It normally takes between 45 to 90 days after the 1st Deed of Trust Conventional loan for the SBA to fund the SBA 2nd Deed of Trust/Mortgage. To ensure a smooth close, most lenders either require or offer an interim loan of 120 days which is paid off with the SBA Debenture. Typically, the interest rates on the 120-day interim note mirror the rate on the 1st TD conventional loan.

If your tangible net worth is less than $7.5 million and your average net income doesn’t exceed $2.5m after taxes for the preceding two years and you operate your business for profit, then you could be eligible for the 504-loan program.

Program Qualifications

Some eligible uses of proceeds could be :

  • To purchase land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping
  • To acquire commercial real estate
  • In conjunction with a commercial real estate acquisition financing request, the LCC may consider using funds for constructing new facilities or modernizing, renovating or converting existing facilities and the purchase of long-term machinery and equipment.

Some examples of where you wouldn’t be eligible to use proceeds include for working capital, inventory or debt consolidation, repayment or refinancing. Loans can’t be made for speculation purposes nor for investment in rental real estate.

The property in question must be occupied by a minimum of 51% by the Small Business Concern (60% for new construction) and of these types :

  • Office: Professional, Condominium, Medical, Dental and Veterinarian.
  • Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
  • Retail: General.
  • Special Use: Assisted Living Facilities, Adult Care, Day Care Facilities, Restaurants, Funeral Homes, Hotels/Motels.

To qualify, here are the underwriting requirements :

  • You must have prior ownership and management experience
  • Minimum FICO of 680
  • All loans are Full Recourse and require the personal guarantee of any and all individuals or entities holding 20% of the ownership interest or more
  • A 1.25 x Minimum Debt Coverage Ratio (DCR) for the most recent FYE and Interim period is required.

Download our SBA Mortgage Borrower’s Guide

Download our SBA Loan Application

To find out if you qualify for the SBA 504 loan program call our office at 800-510-2214 to speak with one of our commercial loan Advisors or click here to request a Free consultation to get prequalified Disclaimer: Loan program parameters subject to change without notice.

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