SBA 504 Loan Lender Advantages


An SBA 504 loan can finance real estate or heavy equipment in a partnership financing package between a bank lender and Oregon Business Development Corporation, an SBA Certified Development Company (CDC). Typically, the bank lender finances 50% of the project cost and the CDC finances 40%. Oregon Business Development Corporation, established in 1983 and headquartered in Redmond, offers SBA 504 loans throughout the state. Call us today – we’re here to help make SBA 504 packaging easier for you and your borrowers.

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Advantages

  • Low down payment is only 10% for an existing business (15%-20% is required for new businesses or special-use properties) – in some cases the down payment can be financed from other sources
  • Low down payment lets the borrower keep more cash for working capital
  • Fixed interest rate that is usually below-market on the CDC portion of the loan
  • All project costs can be financed (soft costs such as appraisal, loan fees, and closing costs)
  • Collateral is typically the asset financed, leaving other assets free of liens for other needed financing
  • Long term, fully-amortizing 20-year real estate loan (equipment-only loans ~ 10 years)
  • Using the 504 program enables the lead lender to make loans in a first lien position on reasonable terms, helps retain growing customers, and provides CRA credit

Use of Funds

  • Purchase of land and construction of a new building
  • Acquisition of an existing building or renovations/additions for an existing building
  • Acquisition of heavy machinery or equipment (i.e. printing press or assembly line equipment)
  • On real estate projects, equipment may be included
  • Buildings on leased land are eligible

Typical Structure

Purchase land
$400,000
 Bank 1st mortgage
$1,000,000
50%
New Construction
$1,500,000
 SBA 504 2nd mortgage
$800,000
40%
Soft Costs
$100,000
 Borrower Cash
$200,000
10%
TOTAL
$2,000,000
 TOTAL FINANCING
$2,000,000
100%

Features*

  • Maximum 504 2nd mortgage is $1.5 million for standard projects, but can be up to $4.0 million for manufacturers; total project size can be from $250,000 to $16.0 million
  • Debt refinance is usually ineligible; working capital is not an eligible project cost
  • Existing buildings must be 51% owner-occupied; new construction- 60% owner-occupied
  • The project must create or retain jobs, or must meet one of several SBA exceptions
  • Almost any type of small business is eligible:
    • retail, wholesale, service, manufacturing, hospitality

What To look for

  • Growing businesses/start-ups with strong management that need to preserve working capital
  • Marginal historical debt coverage may be acceptable with positive trends and solid growth plan
  • Collateral weaknesses can be alleviated using the SBA 504 program

*call for details and exceptions