Frequently Asked Questions
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 Oregon Business Development, an SBA Certified Development Company (CDC). CDCs are licensed and regulated by the U.S. Small Business Administration (SBA). SBA 504 loans can be used for the purchase of an existing building or the purchase of land and construction of a new building. Other eligible project costs include 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 interest rate on the CDC portion is fixed for the life of loan and is typically below the market rate. The terms on the bank portion will be attractive due to the bank’s low loan-to-value position. 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 Corporation is a Certified Development Company. CDCs 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 (usually 50% of the project), a second mortgage from a CDC (usually 40% of the project), and a 10% 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. Processing/approval time depends upon many factors, but usually ranges from four 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. Fees currently total 2.16% of the CDC loan amount, plus attorney fees for 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 $15.0 million and profit after taxes of more than $5.0 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 are required to personally guarantee the loan. The 504 program is intended to create new job opportunities, but 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 at 541-548-9541 or 541-548-9538 to talk about your project and financing options. 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.