SBA 504 Loan Checklist for Construction Projects

When seeking a loan for a construction project using the Small Business Administration’s 504 Loan Programs, the SBA has specific requirements to ensure that the project is viable and can be repaid. Here’s a helpful checklist detailing what the SBA requires explicitly for a construction loan:

□   Construction Plans and Specifications: Complete architectural and engineering plans, including blueprints, specifications, and details about the project's scope.

□   Hard Cost Documentation: Independent third-party contractor, to verify that the      project budget is accurate and reasonable.

□   Soft Cost Documentation: Invoices and payments for architectural, engineering,   and permitting.

□   Construction Contract: A final fixed-price or guaranteed maximum price contract with a qualified general contractor. The contract must outline the terms, including cost, timelines, and a clear description of the project.

□   Contingency Reserve: The budget will include a contingency reserve, up to 10%       of the construction budget, to cover unforeseen costs.

□   Contractor Qualifications: Documentation proving the general contractor's  qualifications, experience, and financial stability. This may include references, previous project details, financial statements, and licensing information.

□   Permits and Approvals: Copies of all necessary building permits, zoning approvals, and environmental clearances.

□   Insurance: Proof of builder’s risk insurance, general liability insurance, and other necessary coverage.

□   Credit Report: A credit report to assess the contractor’s creditworthiness and      ability to manage project finances.

□   Lien Waivers: Agreement to provide lien waivers to protect against liens placed on the property by subcontractors, suppliers, or the general contractor.

□   Appraisal: An independent appraisal of the property, both as-is and as-completed, to determine the current and future value.

□   Excess Land: the appraisal could allocate some of the property as “excess land” if it is a large property that needs a fraction of the development’s need; in that case, the borrower will not be allowed to finance that portion of the property in the SBA loan.

□   Feasibility Study: For larger or more complex projects, a feasibility study may be required to demonstrate the project’s viability, market demand, and potential return on investment.

□   Progress Reports: Regular reporting on the progress of the construction, including any delays, issues, or changes  will be required by the lender and shared with the SBA.

□   Site Inspections: Agreement to allow lender representatives to conduct site inspections to verify that the project is progressing as planned.

□   Occupancy Requirements: Pre-approval and post-occupancy documentation and inspection to document immediate owner-occupancy of at least 60% and 51% for ground-up and renovation projects, respectively.

□   Cost Overruns and Change Orders: All must be approved by the lender and borrower. However, substantial adjustments to the construction budget may require SBA approval of a modification if the construction contingency is insufficient to cover the overages.

□   SBA Loan Approval and Bridge Loan Construction Funding: Once the SBA approves the loan request for construction and the real estate reports (appraisal and environmental), the lender can begin funding the loan for construction.

□   SBA Closing & Funding: The SBA will begin the closing and funding process once the participating lender has fully advanced 100% of the project's committed use of proceeds, a certificate of occupancy has been issued, and the GC has provided an all-bills paid affidavit.

Many of the above are prudent lending practices, even for non-SBA transactions. Let CBF know how we can assist with any construction financing projects.