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The Commercial Capital Gazette
Commercial Mortgage and Real Estate News
Published By 1st Coastal Commercial Capital
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SBA 504 FINANCING
90% Fixed Rate Financing for Owner-Occupied Real Estate and Machinery & Equipment
The UNBEATABLE Advantages
Conserve Valuable Operating Capital / 90% Financing
•The minimum 10% down payment is 10-20% lower than the equity requirement for a conventional loan
•Soft costs (architectural and engineering fees, appraisal and environmental assessment costs, title search and title insurance costs, interest on bridge financing) can be included in a 504 loan package and financed
Low Fixed Rate
•Click here for our most recent rates
Longer Repayment Term
•Real Estate Purchases: the 504 loan will have a full 20 year term with no balloon; the Third Party Lenders loan must have a term of at least 10 years
•Machinery and Equipment Purchases: the 504 loan will have a full 10 year term with no balloon; the Third Party Lenders loan must have a term of at least 7 years
Collateral Requirement
•For established businesses where cash flow is adequate, collateral is generally limited to the assets being acquired with the 504 loan package (i.e. real estate and/or machinery and equipment)
•Personal residences and other business assets (inventory, accounts receivable) can remain available for future financing needs
New Refinance Opportunity
•Refinance of mortgage debt on owner occupied commercial real estate, provided the debt is at least two years old and payments have been kept current over the last year.
If you dont get your question answered here, please contact us at: (888) 316-1787 oe email dg1stccc@aol.com
What is the SBA 504 Loan Program?
The SBA 504 Loan Program promotes local economic development by providing long-term fixed-asset financing to expanding small businesses. More specifically, the ]504 Loan is designed to assist small businesses that will be financing the acquisition of owner-occupied facilities and that will create or retain valuable jobs within the community.
The SBA 504 Loan Program has the lowest default and loss rate of any of SBAs financing programs.
What are the main advantages of a 504 Loan?
•Low down-payment requirements
•Long repayment terms (20 years)
•Projected income is considered, not just historical cash flows
•Collateral may be less critical in loan qualification decisions
How long is the 504 Loan process?
A lot depends on the borrower. With complete information and documents, we can pull together the loan package quickly. The timing often depends on obtaining the appraisal and environmental reports as early as possible. All things being equal, routinely meets the demands of a 45-day escrow. It is always good advice to bring us into the process early in order to discuss the project timing. In any event, SBA 504 Loans do not take longer to approve than conventional loans.
What fees are associated with the 504 Loan?
There are fees associated with the 504 Loan that are required by SBA for every 504 loan that is funded; these fees are approximately three percent of the 504 Loan and are financed as a part of the Loan. In addition, there are servicing fees associated with the 504 Loan that are reflected in the effective interest rate. Finally, there are out-of-pocket expenses related to the CTCIC 504 Loan closing, which is autonomous from the bank closing, including but not limited to recording costs, filing fees, title insurance premiums, hazard insurance premiums, and flood insurance premiums (if applicable).
What are the terms of the 504 Loan?
504 Loans used for the acquisition of real estate typically have a term of 20 years, while machinery and equipment loans typically have a term of 10 years. The 504 Loan has a low interest rate, which is fixed for the entire term of the Loan. The interest rate is based on a spread over the current market rate for 10-year U.S. Treasury issues and is determined when the Loan funds.
What type of equipment can be financed with a 504 Loan?
Long-term machinery and equipment with a useful life greater than 10 years (for example: a printing press).
What amount of equity is required from the borrower for the 504 Loan Program?
The minimum equity injection is at least 10% of the total project cost. In addition, if the project involves the purchase or construction of a single-purpose facility, the required equity injection increases by 5%. If the business is new (less than two years old or any ownership change), the required equity injection also increases by an additional 5%. Start-up businesses need to be sufficiently capitalized.
What collateral is taken to secure the 504 Loan?
Collateral taken to secure the 504 Loan typically includes: a second mortgage on the land and building being financed; a second lien on any machinery, equipment and/or fixtures that are financed; unsecured personal guaranties from any principal with greater than 20% ownership; and lease assignments.
An owners personal home is not usually required as collateral. In the majority of projects, the Project Property will be the sole collateral securing a 504 Loan. Additional collateral is only required when there is a deficiency in the appraised value of the Project Property or when other serious credit issues are apparent.
Will I need to personally guarantee the 504 loan?
SBA requires guarantees from all individuals and legal entities that hold a 20% or more ownership interest in either the Project Property or the Operating Company.
What are some basic eligibility requirements of the 504 Loan?*
•The Third Party Lender financing must be equal to or greater than the 504 Loan
•The 504 Loan may not exceed 40% of the total cost of the project
•The Borrowers injection must be at least 10% of the total project cost, and may be more, as required by statute or for credit reasons
•No more than 50% of the project costs can come either directly or indirectly from Federal sources
•Occupancy Requirements:
•The Borrower must occupy 51% of an existing building purchase
•The Borrower must occupy 60% of a newly constructed facility, and 80% within 3 years
•The Borrower is required to meet job creation and/or job retention goals or an economic development objective, as determined by the Loan amount
*This is not an exhaustive list. for more information email us at dg1stccc@aol.com.
How do I know what I paid in interest and fees for last year?
Your amortization schedule will provide accurate information regarding interest and fees as long as payments are paid in a timely manner. Also, notices are sent to Borrowers by January 31 itemizing interest and fees paid for the prior year.
How can I pre-pay my 504 Loan?
Unlike standard bank loans, SBA-funded loans must follow strict guidelines. For specific information, call us. Is my 504 Loan assumable?
If you are selling the building, a qualified buyer can assume your loan for a $1,000 assumption fee. The pre-payment penalty does not apply in this instance.
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1st Coastal Commercial Capital - 3201 Mountain Rd Suite 116 - Pasadena, MD 21122
Office Phone: (410) 255-7437 Fax: (410) 360-1429 Cell Phone: (443) 257-9096
Toll Free Phone: (888) 316-1787
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