SBA 504 Program

The SBA 504 Loan Program allows small businesses long-term financing at affordable interest rates. The SBA 504 program provides loans for the purpose of job creation, retention, or public benefit to an existing for-profit or new small business.

Some of the many benefits of the SBA 504 program are long term financing with a low down payment accompanied by below market, fixed interest rates.

Use of Proceeds

An SBA 504 loan can only used for fixed asset financing (land, land improvements, building construction, purchase of buildings, renovation of buildings, machinery, or equipment).

Interest Rate

The interest rate of an SBA 504 loan is determined by the market conditions and will typically be well below the prime rate.

Term of the Loan

The term of an SBA 504 loan is either ten or twenty years. As a rule, it is not usually cost effective to use the SBA 504 program for a project that has a total cost of less than $250,000. SBA's maximum portion is 40% of the total project cost up to $1,500,000 (or $2,000,000 for projects meeting an SBA Public Policy Goal or $4,000,000 for a manufacturing company). The total project cost is not limited.

Lending Partnership

With the SBA 504 program, SBA takes a subordinate position to the bank. Business owners are required to have a 10% equity position in any 504 project for an existing business (2 years or older), a 15% equity position for a start-up business or where the building will be a "special use" (e.g., motel, gas station, etc.), and a 20% equity position when a project is both start-up and special purpose. Typically, the SBA 504 loan is structured as follows:

SBA 504 Loan Structure

Source	Existing Business	Start-Up Business	Start-Up & Special Use
Commercial Lender (First Mortgage)	50%	50%	50%
SBA 504 (Second Mortgage)	40%	35%	30%
Equity Injection	10%	15%	20%
Project Cost	100%	100%	100%

SBA 504 FAQ

Is Job generation of retention required?

In most cases, yes, job retention or creation is required in the SBA 504 program. The only other option for an SBA 504 loan is a public benefit project. For more information about public benefit projects, contact Southeast Development Corporation.

What is the maximum loan amount?

Althouth the SBA portion of the proect is limited to $1,500,000 ($2,000,000 for certain public policy goals or $4,000,000 for a manufacturing company) there is no limit to the over all cost.

What is the prepayment penalty?

The prepayment penalty for a 504 loan applies to the first half of the term of the loan (5 years on a 10 year loan or 10 years on a 20 year loan). The penalty reduces each year.

Are there insurance requirements for the SBA 504 program?

The insurance requirements for the Small Business Association 504 program are life insurance on the principals of the business and hazard insurance on the value of the assets. Depending on the type of business there may be other insurance requirements.

Are personal guarantees required?

Yes, personal guarantees are required for the SBA 504 program for any person owning 20% or more of the business.

Contact

Southeast Development Corporation
Mike Ohlman
(423) 424 - 4227
mohlman@afgnmtc.com