Company loan program (504 loans)
The 504 Loan program is an economic development program that supports American small business growth and helps communities through business expansion and job creation. The 504 loan program provides long-term, fixed-rate, subordinate mortgage financing for acquisition and/or renovation of capital assets including land, buildings and equipment. Some refinancing is also permitted. Most for-profit small businesses are eligible for this program. The types of businesses excluded from 7(a) loans are also excluded from the 504 loan program.
The SBA’s 504 Certified Development Companies (CDC) serve their communities by financing business expansion needs. Their professional staff works directly with borrowers to tailor a financing package that meets program guidelines and the credit capacity of the borrower’s business.
CDCs work with banks and other lenders to make loans in first position on reasonable terms, helping lenders retain growing customers and provide Community Reinvestment Act credit.
Program additions based on energy consumption
Recent additions to the program allow $5.5 million for each project that reduces the borrower’s energy consumption by at least 10%; and $5.5 million for each project that generates renewable energy fuels, such as biodiesel or ethanol production. Projects eligible for up to $5.5 million under one of these two requirements do not have to meet the job creation or retention requirement, so long as the CDC portfolio reflects an average jobs to debenture portfolio ratio of at least one job per $65,000.
• Eligible project costs are limited to long-term, fixed assets such as land and building (occupied by the borrower) and substantial machinery and equipment.
• Most borrowers are required to make an injection (borrower contribution) of just 10% which allows the business to conserve valuable operating capital. A further injection of 5% is needed if the business is a start-up or new (less than two years old), and a further injection of 5% is also required if the primary collateral will be a single-purpose building (such as a hotel).
• Two-tiered project financing: A lender finances approximately 50% of the project cost and receives a first lien on the project assets (but no SBA guaranty); A CDC (backed by a 100% SBA-guaranteed debenture) finances up to 40% of the project costs secured with a junior lien. The borrower provides the balance of the project costs.
• Fixed interest rate on SBA loan. The SBA guarantees the debenture 100%.
• All project-related costs can be financed, including acquisition (land and building, land and construction of building, renovations, machinery and equipment) and soft costs, such as title insurance and appraisals. Some closing costs may be financed.
• Collateral is typically a subordinate lien on the assets financed; allows other assets to be free of liens and available to secure other needed financing.
• Long-term real estate loans are up to 20-year term, heavy equipment 10- or 20-year term and are self-amortizing.
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