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 or 20-year term
  • Machinery & equipment – may be 10 or 20-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 $65,000 of the debenture amount
  • 1 new job must be created or retained for every $100,000 of the debenture amount for 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