Frequently Asked Questions
What is the SBA 504 loan program?
How can an SBA 504 loan help me?
What are Certified Development Companies?
Do SBA 504 applications take a long time?
What are the fees for SBA 504 loans?
What types of businesses are eligible?
How do I get started?
What is the SBA 504 loan program?
The SBA 504 loan program is a fixed asset financing program for new or growing small businesses. A 504 financing package is a partnership loan with your bank and a Certified Development Company, also known as a CDC. CDC's are licensed and regulated by the U.S. Small Business Administration (SBA). SBA 504 loans can be use for the purchase of an existing building or the purchase of land and construction of a new building. Other eligible uses included equipment, furnishings, and most closing costs. Working capital items, such as inventory, are not eligible under the 504 program.
How can an SBA 504 loan help me?
SBA 504 loans offer small business owners a down payment as low as 10%, much less than the 25%-30% down payment typically required for commercial buildings. The 504 program provides a fixed interest rate on the CDC portion of the project. The interest rate on the bank portion will be attractive due to the bank's low loan-to-value position. The interest rate on the CDC portion is fixed for the life of loan and is typically below the market rate. In addition to these benefits, the 504 program offers 20-year financing, with no risky loan call provisions.
What are Certified Development Companies?
Oregon Business Development is a Certified Development Company. CDC's are non-profit community-service corporations that provide SBA 504 financing. CDC's are licensed and regulated by the SBA, which provides the system that uses bonds to fund SBA 504 loans. Oregon Business Development is staffed by experienced professionals who work directly with small business owners and lenders to create SBA 504 financing packages. An SBA 504 financing package consists of a first mortgage from a bank lender, a second mortgage from a CDC, and a down payment from the business owner.
Do SBA 504 applications take a long time?
Business owners are very busy, so we do everything we can to make the application process as quick and easy as possible. We work directly with your bank to streamline the application process, and we have the staff resources and technology to underwrite your loan quickly. There are only a few SBA forms to complete, along with your bank's loan application. Oregon Business Development is an an SBA Accredited Lender and is approved by the SBA to submit an abbreviated file for final SBA review. We are also a Priority Closing CDC. Approval time depends upon many factors, but can be as short as three to six weeks.
What are the fees for SBA 504 loans?
SBA 504 loan fees are set by SBA and are automatically included in the loan, so there are no extra out-of-pocket costs. Closing costs are also included in the loan. SBA 504 loans are pooled each month and converted into bonds purchased by investors. Fees currently total 2.15% of the CDC loan amount, plus attorney fees for closing the loan and preparing the SBA bond documentation. These costs apply only to the CDC portion of the project. Your bank will determine the fee for its portion of the project separately, and that fee can also be included in the financing packaging. The bank loan fee will include a one-half of one-percent fee that the bank pays to SBA. The costs of the SBA 504 program are low in comparison to the benefits.
What types of businesses are eligible?
Almost every type of business is eligible for SBA 504 financing. The business must be a for-profit entity and cannot have a tangible net worth of more than $8.5 million and profit after taxes of more than $3.0 million. The business must occupy at least 51% of its property for existing buildings or 60% of a newly-constructed building. The real estate financed by the 504 program can be owned by a separate entity from the business. All 20% or more owners of both entities are required to guarantee the loan. The 504 program is intended to create new job opportunities. Since most businesses will create new jobs as a result of purchasing or constructing a new building, the job creation requirement is usually not difficult to meet. There are some situations when the job requirement can be waived.
How do I get started?
The best way to start is by calling Oregon Business Development to talk about your project and SBA 504 financing. We would be happy to meet with you at your business. The sooner everyone can get together, the sooner we can get your application started. If you have questions about a potential project, please check with us first to discuss eligibility or other project issues.