SBA Benefits for Banks
Mitigation of credit risk Lenders have first lien position and typically a 50% loan-to-value
ratio, minimizing collateral risk. The SBA can realize on its collateral only if the
lender is paid in full.
Management of Overall Lending Limits and Industry Exposure With 504, smaller
banks can entertain larger projects. Even larger banks can limit their exposure
to certain industries and/or to a particular borrower. The reduction of CRE loan
concentration on your balance sheet reduces regulatory concerns.
Can Assist More Customers Leverages lending capacity across more borrowers and
diversifies default risk and reduces loss in the event of default.
Gain New Customers SBA 504 loans are designed to finance growth companies, and
an entrepreneur who is investing in a permanent facility is often entering into his
largest business-related loan. An SBA 504 loan often becomes the basis of an entire
banking relationship.
Active Secondary Market There is an active secondary market for 504 first mortgage
loans, so banks can reduce their exposure to zero and enhance their non-interest
income while retaining the customer’s primary banking relationship.
Strengthening of Core Earnings Pricing of the bank’s loan is at its discretion. 90%
financing also means that more of the customer’s funds remain on deposit. The
bank is able to earn fees and interest on the interim loan, and generate fee income
from sale premiums and loan fees if it chooses to sell the first mortgage loan in the
secondary market.
CRA Credit Banks that participate in SBA 504 loans are eligible for Community
Reinvestment Act (CRA) credit on certain projects.