SBA 504 Benefits for Banks
Mitigation of credit risk. The bank has a first lien position and typically a 50% loan-to-value ratio, minimizing overall risk.
Management of Lending Limits and Industry Exposure. By using the SBA 504 program, smaller banks can entertain larger projects. Also, banks can limit their exposure to certain industries and/or to a particular borrower by using the 504 program.
Assist More Customers. Using the 504 program helps bankers leverage lending capacity across more borrowers, diversifies default risk, and reduces loss in the event of default.
Gain New Customers. SBA 504 loans are designed to finance growing companies, and a business owner who is investing in a permanent facility is often entering into a period of increasing sales and deposits. 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. 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 credit on certain projects.