Monthly Archives: June 2020

SBA 504 Program Overview

The SBA 504 loan program provides small businesses long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. Projects are secured by a 1st and 2nd Deed of Trust/Mortgage on General and Special Purpose commercial real estate, meeting SBA qualifications, having a maximum aggregate Loan to Value between of 90%, depending on program parameters.

Typical project structure:

• 50% LTV Conventional 1st DOT/Mortgage
• 40% LTV SBA/CDC 2nd DOT/Mortgage
• 10% Equity Injection

SBA 504 Program Eligibility:

• The Small Business Concern must be operated for profit and fall within the size standards set by the SBA (Tangible Net Worth LESS THAN $15 million and Average Net Income DOES NOT exceed $5 million after taxes for the preceding two years). Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

Use of Proceeds:

• Purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping.
• Construction of new facilities or modernizing, renovating or converting existing facilities.
• Purchasing long-term machinery and equipment.

NOTE: The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Maximum Debenture:

• $1,500,000 when meeting the job creation criteria or a community development goal.
• $5,000,000 when meeting a public policy goal.
• $5,500,000 for small manufacturers.

Debenture Rates/Fees:

• Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 20 and 25 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan.

Eligible Property Types:

• Office: Professional, Condominimum, Medical, Dental and Veterinarian.
• Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
• Retail: General.
• Special Purpose: Assisted Living Facilities / Adult Care, Day Care Facilties, Restaurants, Funeral Homes and Hotels/Motels.

Maximum Loan Amount:

• 1st DOT/Mortgage – $12,000,000

Rate Options:

• 3, 5, 10, and 25-Year Fixed Loan Terms Available.

Maturity and Amortization:

• Up to 25 and 30 years.

Maximum LTV:

• 60% LTV based upon the Lower of Cost or Apprasied Value.

Minimum Debt Coverage Ratio:

• 1.10x Minimum Debt Coverage Ratio (“DCR”) for the most recent FYE and Interim period. The DCR will be based on the underwritten EBITDA of the Small Business Concern.

Occupancy:

• 51% or greater must be occupied by the Small Business Concern.

Borrower/Guarantor Characteristics:

• Prior Ownership and Management Experience.
• Minimum FICO 680.

Recourse:

• All loans are Full Recourse and require the personal guarantee of any and all individuals or entities holding 20% ownership interest or more.

Interim Financing:

• Up to $5,500,000
• 120 Day Term.
• Variable Interest Rate based upon the published Wall Street Journal (WSJ) Prime Index + 2.75%, Interest Only, to adjust QUARTERLY.

**Funding of interim loan may be required by Lender.

Construction Financing:

• Available for Multi Purpose Projects. Please call for Program Information.