SBA 504 Loan Program

The Money That Makes America Work

As a successful small business owner you help to provide more job opportunities than any other sector of the economy. Yet when you look for financing to meet your expansion needs, conventional sources are limited and often requiring 20% - 30% cash down payment. Where can you go for help? The answer is Amador Economic Development Corp. an SBA Certified Development Company (CDC) partnering with the US Small Business Administration to offer you the 504 Loan Program. AEDC has the resources to offer you and your business financial planning, international trade training, business expansion analysis, and SBA financing. AEDC consultants and volunteers can provide the most current information available.

With 504, you get long-term, fixed rate financing at below prime interest rate. And the best news is that you typically put in only 10% cash which allows you to use the other cash that you would have had to put up using conventional sources for working capital giving you a faster ROI. It allows you to control your money rather than placing it into a fixed asset.

Typical 504 Financing Package

Project Example: Real Estate Purchase and Construction $1,000,000

Frequently Asked Questions

What can the SBA 504 loan program be used for?

• Purchase land and construction of building
• Land acquisition, and new, ground-up construction
• Remodeling or rehabilitation of an existing building
• Building expansion
• Tenant improvements
• Equipment acquisition (with life expectancy of 10 years or more)
  

What are the minimum and maximum project costs?

• Minimum of $250,000
• Maximum of $10,000,000 (depending on overall loan structure)

What is the maximum SBA loan amount?

• $2,000,000
• $10,000,000 for manufacturing companies
• 40% of project cost for a multi-purpose facility; or
• 35% of project cost for a special purpose facility (restaurant, gas station); or
• 35% of project cost for a startup business (less than 2 years old); or
• 30% of project cost for a startup business in a special purpose facility

How can the bank loan be structured?

• Amortization – 10 to 30 years; 7 to 10 years for equipment
• Term – minimum of 10 years for real estate; minimum of 7 years for equipment
• Interest rate will be set at market rates (fixed or variable)

How is the SBA loan structured?

• Fully amortized for 20 years at a fixed rate determined monthly based on the bond market (always below prime rate)

What bank fees are eligible for financing within the program?

• Points/loan fee
• Documentation fee
• Processing fee
• Appraisal
• Environmental report
• Title fees

What are the SBA closing costs?

• Approximately 2.68% of the SBA loan, plus legal costs of $2500 all of which are financed within the loan.

How long does it take to get an approval from SBA?

• Approximately one week after receipt of complete financial package depending on SBA’s backlog

What are the occupancy requirements for the business?

• 51% if acquiring an existing facility (49% can be leased out)
• 60% for new construction with the potential that the business will occupy some additional space within three years, and a total of 80% within ten years.

Can the property be owned personally and leased to the business?

• Yes. In addition, the ownership in the real estate does not have to be the same as the ownership of the business, but a guarantee by the business and the owners will be required.

What about an environmental report?

• An environmental questionnaire is required on all properties
• A Transactional Screening Analysis is required on all properties, except bare land that has never been farmed
• A Phase I and/or II environmental report may be required if additional investigation is needed

What about an Appraisal Report?

• The appraiser must be qualified to prepare a commercial real estate appraisal report
• Submissions to SBA can be subject to receipt of an appraisal report
• Complete appraisals are generally required. Limited appraisals may be acceptable. Restricted appraisals are not acceptable

What are the eligibility issues ot the SBA 504 program?

• The business plus affiliate companies must have a net worth of less than $7 million
• The average net profit of the business cannot be more than $2.5 million after taxes in the last two years
• The business must create and/or retain jobs and/or meet one of the following SBA Public Policy goals:

1. Expansion of an export business (at least 10% of last years sales must be from export sales)
2. Expansion of a minority owned business (at least 51% ethnic minority interest
3. Women owned
4. Veteran owned

For additional questions and/or clarification regarding the SBA 504 program, please contact us directly.