What Businesses are eligible for an SBA 504 loan?
Business Capital Group through the US Small Business Administration (SBA) and its lending partners provides financing for a wide range of businesses.  To be eligible, the business generally must be operated for profit and fall within the size standards set by the SBA.  Under the SBA 504 program, a small business is defined as a business with a tangible net worth that does not exceed $7 million and an average net income that does not exceed $2.5 million, after taxes for the preceding two years.  Loans cannot be made to businesses engaged in speculation or investment.

How does the SBA 504 loan program work?
The SBA 504 program is designed to enable small businesses to create and retain jobs.  One job must be created or retained for every $50,000 of SBA 504 loan proceeds or the project financed with the loan meets a stated SBA public policy goal.  Typically, an SBA 504 project includes the following:

• A loan from a bank in amount of up to 50 percent of the project cost secured by a senior lien on the project.
• A second loan from CDC/SBA (certified development company) in an amount of up to 40 percent of the project cost secured by a subordinate lien on the project.
• A contribution of at least 10 percent equity by the borrower,
  with loans for start-up companies or for special purpose buildings requiring an additional 5 percent (a combination of start-up and special purpose would require a total of 20% percent).

What is the maximum loan amount?
The maximum loan amount for the 504 portion of the loan is generally $1.5 million, in some cases up to $2 million may be loaned when the borrower is a minority (including women), if the business is located in rural county or if the loan meets some other public policy goal.

What expenses will a SBA 504 loan cover?
Proceeds from SBA 504 loans must be used for the acquisition of fixed assets such as:

• Purchasing land and improvements,including existing buildings, grading, street improvements, utilities, parking lots and landscaping.
• Constructing new facilities.
• Modernizing, renovating or converting existing facilities.
• Purchasing machinery and equipment.
• Interest on interim loans, professional fees, and soft costs related to the project.  The 504 program cannot be used for working capital, inventory purchases, debt consolidation or refinancing.

What will the term and interest rate be on the SBA 504 loan?
Terms of 10 and 20 years are available.  The SBA 504 debentures are sold on the secondary market, and interest rates are set at a fixed rate at the time the loan is funded.

What fees are involved?
Fees total approximately 2.85 percent of the SBA debenture and are financed with the loan.  This fee includes a CDC processing fee of 1.5 percent, a guaranty fee, a funding fee, and an underwriting fee.  The bank is required to pay to the SBA a .5 percent fee on the senior lien loan amount.  Interest rates and fees on the senior mortgage are negotiated directly with the lender.

Are there any pre-payment penalties?
There is a pre-payment penalty on the SBA 504 loan based on a sliding scale for the first 10 years on 20 year debenture and the first 5 years on a 10 year debenture.  Terms on the senior mortgage bank loan are negotiated directly with the lender.

What type of collateral is expected to be pledged?
Generally, the project assets being financed are used as collateral.  Personal guaranties are required from all principal owners of the business (with ownership of 20% or more).  Other collateral may also be required.

What does the SBA look for in a loan applicant?

• Good character, management expertise, and the commitment necessary for success.
• Adequate equity investment in the business and sufficient funds to operate the business on a sound financial basis (for new businesses, the includes the resources to withstand start-up expenses and the initial operating phase).
• Ability to repay the loan on time from a historical or projected operating cash flow.
• Feasible business plan.