WHAT IS AN SBA 504 LOAN?
A loan in conjunction with a lending partner used to purchase commercial real estate, construct a building, purchase long-term equipment or refinance eligible business assets.
PROJECT SIZE
$250,000 to 15,000,000 +
BORROWER’S DOWN PAYMENT
- 10% in most cases
- 15% for start-up businesses (less than two years in operation) or special-purpose properties
- 20% if the project is both a start-up and special-purpose property
- Equipment loans may qualify with 10% or 15%
OWNER OCCUPANCY
- 51% for purchases of an existing building (renovations and expansions are eligible)
- 60% for ground-up construction projects (additional 20% within 3 years)
SBA MAXIMUMS
- $5 million maximum, or …
- $5.5 million for manufacturers, or …
- $5.5 million if business is reducing their energy consumption by 10%
- No maximum limit placed on lending partner’s loan portion
INTEREST RATE
- Fixed rate based on Treasury rates
- Rate is locked-in when SBA funds the debenture
LOAN TERMS
- Fully-amortized over life of loan (no balloon)
- Real estate – may be 10, 20 or 25-year term
- Machinery & equipment – may be 10, 20 or 25-year term
ELIGIBLE USE OF FUNDS
- Acquisition of vacant land
- Building construction
- Acquisition of existing buildings
- Major renovations and/or additions to existing buildings
- Purchases of capital equipment, including heavy machinery
- Lender’s interim points, interest & closing cost
INELIGIBLE USE OF FUNDS
- Working capital
- Goodwill from business acquisition
- Inventory
- Franchise fees
- Tenant improvements
- Rolling stock (i.e. vehicles)
ELIGIBLE BUSINESSES
- Legal entity - corporation, partnership, sole proprietor, limited liability company
- Owners must be U.S. citizens or legal permanent residents
- Located in the United States
- Net worth under $15 million and net profits under $5 million (2 year average)
INELIGIBLE BUSINESSES
- Non-profit businesses
- Businesses engaged in lending
- Passive businesses (i.e., apartments, shopping centers)
JOB CREATION/PUBLIC POLICY GOALS
- 1 new job must be created or retained for every $75,000 of the debenture amount
- 1 new job must be created or retained for every $120,000 of the debenture amount for small manufacturing
Job requirement can be excluded if a public policy goal is satisfied:
- Women, minority, or veteran owned (ownership of 51% or more)
- Rural development
- Revitalizing economic development areas
- Expanding exports
- Projects that reduce energy consumption by at least 10% or generate renewable energy or fuels
BENEFITS FOR LENDING PARTNERS
- Minimize credit risk – minimizes collateral risk for the lender by having a 1st lien position at 50% or better loan-to-value
- Satisfy current customers – allows you to offer longer terms, fixed interest rates, and low down payments to your customers
- Attract new customers – designed to finance new and expanding businesses; purchasing a facility is often a borrower’s biggest business loan, and offers an opportunity to create an entire banking relationship
- CRA credits – banks that participate in the SBA 504 Loan Program are eligible for Community Reinvestment Act (CRA) credit on certain projects
BENEFITS FOR BORROWERS
- Lower equity injection, which conserves working capital and retains liquidity to meet operating needs
- Long term fixed rate financing
- Eligible soft costs may be rolled into the project financing