SBA 504 Loans:

The SBA 504 Loan Program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. Financing is available through SBA-authorized Certified Development Companies (CDCs) in partnership with a Third-Party Lender (typically a bank or other participating lender).

SBA 504 Technical Assistance:

A loan checklist is provided for each SBA 504 loan applicant as Technical Assistance.
The checklist helps guide the loan applicant as to the documentation required for loan consideration.

The Program:

The 504 Program provides long-term, fixed-rate financing for eligible fixed assets used by eligible small businesses. Typical eligible project assets include:

• Owner-occupied commercial real estate.
• Land and improvements.
• Construction or expansion of facilities.
• Renovation and modernization of facilities.
• Eligible machinery and equipment with the required useful life.
• Certain eligible energy projects.

Borrower Advantages:

Preserves Capital

For a standard 504 project, the borrower contribution is generally at least 10% of eligible project costs. A higher contribution may be required for a new business, a Limited or Special Purpose Property, or when both conditions apply.

Competitive Long-Term Financing

The CDC/SBA portion provides long-term, fixed-rate financing. Available 504 maturities are generally 10, 20, or 25 years, depending upon the project and asset characteristics.

Improves Cash-Flow Management

The longer amortization available through the 504 program can reduce the monthly debt-service burden compared with shorter-term financing, subject to the overall economics and underwriting of the project.

Supports Fixed-Asset Acquisition

The program allows an eligible small business to preserve working capital while financing qualifying real estate, construction, improvements, and long-term equipment.

Bank Advantages:

The Third-Party Lender generally holds the first lien on the project collateral, while the CDC/SBA 504 loan is generally secured by a second lien on the project property.

The 504 structure may:

• Allow the lender to participate in larger fixed-asset projects while limiting its percentage of the total project financing.
• Help a lender accommodate an eligible borrower whose available equity is limited.
• Allow the lender to make its own credit decision regarding its Third-Party Loan, subject to SBA 504 requirements.
• Permit the lender to establish the interest rate and other terms of its Third-Party Loan, subject to applicable SBA requirements and the lender's own policies.
• Allow the lender to retain the servicing relationship for its Third-Party Loan.

Third-Party Loan Terms:

The Third-Party Loan must satisfy SBA's 504 requirement concerning amount, maturity, lien position, and other terms.

Under SOP 50 10 8.1, the Third-Party Loan generally must be at least:

• The net CDC/SBA debenture amount; and
• 50% of project costs when the business has operated for two years or less or the project involves acquisition, construction, conversion, or expansion of a Limited or Special Purpose Property.

The Third-Party Loan maturity requirements vary with the 504 debenture maturity.  Generally:

• A 10-year 504 debenture requires a Third-Party Loan term of at least 7 years.
• A 20- or 25-year 504 debenture requires a Third-Party Loan term of at least 10 years.  

Eligible Borrowers

A 504 applicant generally must:

• Be an operating business.
• Operate for profit.
• Be located in the United States or its eligible territories/possessions, as applicable.
• Meet SBA's applicable small-business size requirements.
• 100% of the applicant's direct and indirect owners must be U.S. Citizens or U.S. Nationals with principal residence in the United States, its territories, or possessions.
• Be engaged in an eligible business activity.
• Use the loan proceeds for an eligible 504 project.

Ineligible Borrowers:

The following are examples of businesses or activities that may be ineligible for 504 financing, subject to the detailed SBA rules:

• Nonprofit organizations.
• Businesses primarily engaged in lending.
• Businesses primarily engaged in speculation or investment in rental real estate.
• Businesses principally engaged in gambling.
• Certain insurance businesses.
• Certain businesses engaged primarily in political or lobbying activities.
• Other businesses or activities specifically excluded under SBA regulations and SOP 50 10 8.1.

Example Project Structures:

For construction projects, the applicable SBA rules concerning eligible project costs and construction contingencies must be followed.  The current 504 policy permits a construction contingency of up to 15% of the construction budget, subject to applicable requirements.

Example Standard 504 Loan Structure

For a standard $1,000,000 eligible project:

This example represents a standard 504 structure.  It does not apply to a new business, a Limited or Special Purpose Property, or a project involving both conditions.

For example, a $1,000,000 project involving both a new business and a Limited/Special Purpose Property could generally be structured at approximately:

504 Loan Amounts:

Minimum 504 loan amount is generally $25,000.
Maximum 504 loan amount is generally $5.5 million, subject to SBA's applicable statutory, regulatory, and program-specific limitations.

Job Creation and Retention:

Job creation and retention remain important objectives of the 504 program.  The following are the SBA identified different job opportunity thresholds:

• $65,000 per job opportunity under the general standard.
• $75,000 for qualifying borrowers in certain Special Geographic Areas.
• $100,000 for Small Manufactures.

Owner Occupancy:

• Existing Buildings - The Operating Company must generally occupy at least 51% of the rentable property.
• New Construction - The Operating company must generally occupy at least 60% of the rentable property.

Refinancing:

SBA permits certain 504 debt refinancing, including:

• Debt refinancing with expansion, when the transaction meets SBA's requirements; and
• Debt refinancing without expansion, when the applicable SBA requirements are met.

Qualified debt, eligible fixed assets, lien requirements, payment history, substantial benefit, project structure, and other requirements must be satisfied.

For refinancing with expansion, SBA requires documentation demonstrating that the debt being refinanced meets the applicable eligibility standards.

Monthly 504 Rate Tables:

Effective interest rates are calculated and provided by Wells Fargo Corporate Trust Services after receipt of debenture pricing provided by the DCF LLC Fiscal Agent every month.
The rates are posted here as soon as they are received.

• 20-year and 25-year debentures are pooled and sold on Wall Street the first Tuesday of the first full week of each month (beginning and including Sunday).
• 10-year debentures are pooled and sold at the same time every other month.

The Community Development Resources (CDC) portion of the loan is financed by issuing debentures (bonds) guaranteed by the U.S. Government and sold in the private bond market. The issuance of the these bonds provides small business with the ability to access a competitive market to finance their long-term assets much like Major U.S. Corporations. The program is self sustaining and is not subsidized by the American public.

Community Development Resources' (CDC) staff is committed to providing outstanding customer service while always maintaining and enforcing strict confidentiality. Community Development Resources (CDC) looks forward to working with you regarding all your SBA-504 lending needs.

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