Ban SBA 504 Loan Program
Not only does the SBA 504 loan provide your borrower with a favorable long-term fixed interest rate, it also helps protect the bank’s first-lien position. To find out how the SBA 504 can work for you and your clients, click on the questions below:
What does the typical 504 loan structure look like?
|
Source |
Project |
Lien |
Rate |
Limits |
Term Real Estate |
Term Mach-inery
/Equip. |
|
Bank |
50% |
1st |
Market |
None |
Min 10 yrs |
Min 7 yrs |
|
SBA 504 w/
WCDC |
40% |
2nd |
Fixed |
Min $50k
Max $1.5 Million* |
20 yrs |
10 yrs |
|
Borrower |
10% |
|
|
|
|
|
*If a public policy goal is met, the maximum SBA 504 loan amount increases to $2,000,000. If the project involves manufacturing, the limit can be extended to $4,000,000.
Generally, the bank also provides interim or “bridge” financing for the SBA 504 commitment. The private lender funds during construction. Then upon project completion, the SBA 504 loan funds, and the bank ends up with a 50% loan-to-value on a new commercial facility. (back to top)
How much is the typical down payment?
Generally, the small business contributes 10% of the project’s total cost. Additional equity may be required in cases where the business has been in operation less than 2 years or if that business plans to finance single purpose property. (back to top)
What kinds of businesses are eligible?
Businesses in a variety of industries are eligible, including manufacturing, distribution, health care, agri-business, retail, and service. Eligible businesses must be the primary occupant of the financed property, must be for-profit, and cannot be engaged in speculation or investment in rental properties. (back to top)
If a project is already under construction, can it still qualify for an SBA 504 loan?
Yes. While the project is in interim financing, it is still eligible for the SBA 504 program. In fact, the SBA 504 can participate in a project that has been completed for less than six months. (back to top)
Can a borrower take out multiple loans for the same project?
Yes. Often times, a borrower will utilize multiple loans to meet its financing needs. In some cases, a business may also be eligible for multiple loans from the same program, such as two SBA 504 loans, one for real estate and one for equipment. (back to top)
What conditions does the SBA put on the participating lender?
If the SBA is financing a 20-year debenture, the first mortgage loan must have a term of at least 10 years. If the SBA is financing a 10-year debenture, the private-lender loan must have a term of at least 7 years. Aside from that, the private lender is free to set their own terms and loan conditions. (back to top)
What is the banker’s role in this process?
Your role is simple. You process the commercial loan as you would any other loan request, and we will take care of the rest. WCDC will work with you and your client to coordinate the most cost-effective and efficient processing of the SBA 504 loan. We will make sure the proper documents are assembled and the application is completed. From there, SBA approval usually takes about 2 weeks. (back to top)
What happens after approval?
After approval, the bank funds the project in the interim until it is completed. Once the project is finished, you’ll be asked to provide copies of loan documents and draw schedules (when necessary), and to agree to provide 60-days notice of any default/foreclosure proceedings. Once those conditions are met, WCDC will schedule a closing with the borrower. (back to top)
What happens after closing?
After the project is complete, WCDC will fund the debenture. Funds from the SBA 504 loan will be disbursed directly to the interim lender, approximately 45 days after closing, to be applied to the interim note. Upon funding, the borrower will have two notes, one with you and one with the SBA. (back to top)