Lender

What are the advantages of a SBA 504 Loan?

Advantages for commercial lenders

Reduce risk on projects - resulting in 50% loan-to-value-ratio

Fixed or variable rate option on lender loan

Meets economic development and community reinvestment goals

Keeps the lender competitive by offering attractive financing for its clients

Advantages for small business

Low down payment - helps conserve valuable operating capital

Below market fixed rate - avoids future rate fluctuations, keeps costs of loan low

Long-term - brings debt service in line with cash flow generated by business

What is the lender's role?

The first mortgage lender processes its loan as it would any conventional loan request. CMDC and the lender can work together to collect documents from the borrower that are required for underwriting. Once approved, the lender will utilize its own loan documents to close their loan. Appraisals and environmental reports should be ordered naming all parties (the lender, CMDC, and the SBA) with copies provided to CMDC as received. Generally, the lender provides "interim" or "bridge" financing while CMDC's 504 loan is a permanent take-out loan. Thus, the lender would provide the full 90% financing up front during the construction, renovation, or closing period based on the 504 commitment to take out the applicable portion of the interim financing once the business occupies the property. When the 504 loan closes, the lender will be asked to provide copies of its loan documents, provide copies of its draw schedules (for construction or renovation projects), certify that there has been no adverse change in the borrower's financial condition, and agree to various other provisions such as to provide 60 days advance written notice of default prior to foreclosure proceedings. At CMDC, we strive to be the 504 expert and we ensure that all SBA requirements are met so our lending partners can focus on the lender portion of the loan without having to memorize all of SBA 504 Loan intricacies.

What is the financing structure?

Typical 504 Financing Structure
Source	Project Costs	Lien	Funding Limits	Rate	Term Real Estate	Term M&E
Financial Institution	50 percent	1st	No Limit	Market	10 years or longer	7 years or longer
SBA 504	40 percent	2nd	$1.5 million * $2 million ** $4 million ***	Fixed	20 years	10 years
Borrower	10 percent	n/a	n/a	n/a	n/a	n/a

* Job creation/retention goals are required.
** If a community development or public policy goal is met.
*** If small business is classified as a manufacturer (NAICS sector code 31, 32 or 33)
To fund the 504 portion of the loan, CMDC issues an Authorization for Debenture Guarantee that is fully guaranteed by the SBA and sold on the private bond market.

CMDC will work with you and the borrower to make the application process as easy as possible. If your customer meets prequalification requirements, CMDC will prepare all the necessary paperwork to obtain an SBA loan approval. To find out more about the SBA 504 Loan Program, please contact our office at 763-784-3337.

What are the down payment requirements?

Typically, the small business contributes 10% of the project costs. If the business is a startup (when management has less than 2 years of operating experience), the down payment increases to 15%. If the loan will finance a single use property, the down payment increases to 15%. If the project is for a single use property being financed for a start-up business, the down payment increases to 20%.

What businesses are eligible?

The applicant must be a for-profit business whose business net worth is less than $8.5 million and whose after tax income is $3 million or less, on average, for the last two years.

What projects are eligible and what are the costs?

504 financing is used to acquire, construct, renovate or expand an owner occupied facility. It can also be used to acquire major machinery and equipment with a useful life of at least 10 years. In addition to the acquisition and construction costs, the "soft costs" (appraisals, environmental, construction interest, closing costs, etc.) can also be financed in the 504 loan. This allows the business to preserve working capital that will be needed in the larger facility.

What are the occupancy requirements?

Financing of:	Occupancy	Occupancy After 10 Years	Allowable Permanent Lease
Existing Building	51%	51%	49%
New Construction	60%	80%	20%

What is the project size range?

Project sizes typically range from $200,000 to $10,000,000 with the 504 loan size ranging from $150,000 to $1,500,000 ($2,000,000 when public policy goals are achieved, and up to $4,000,000 for manufacturers meeting SBA defined NAICS codes). The first mortgage lender can exceed 50% of the project total, which enables larger companies to take advantage of the benefits of the 504 loan up to the maximum amount allowed.

What are the fees charged to the lender?

The SBA must collect from the lender a one-time Third Party Lender Participation Fee equal to 50 basis points on the lenders permanent first mortgage in a project when the third party lender is in a senior credit position to the SBA.

Can pre-existing debt on the project property be refinanced with SBA 504 Loan proceeds?

Sometimes. When the Project Property is land and building, and it was acquired less than nine months before the application is received by SBA, the financing used to acquire the land and building could be considered "interim financing" and be eligible to be paid-off with 504 loan proceeds.

Is life insurance a requirement?

A collateral assignment of life insurance is typically obtained on key owners of the business.