What can 504 funds be used for?

• Buying land and/or buildings
• Construction of new buildings
• Purchasing long-term machinery and equipment
• Expanding, renovating or converting an existing facility
• Improvements (including existing buildings, grading, street improvements, utilities, parking lots and landscaping)

What can't 504 funds be used for?

• Working capital
• Purchase of inventory
• Consolidating or repaying debt
• Refinancing

Is there a penalty if I decide to prepay my loan?
Yes. However, the amount of the prepayment penalty will decrease each year and disappears after year 5 for a 504 loan with a 10 year maturity and after year 10 for a 504 loan with a 20 year maturity.

What are the fees?
When your loans close and your SBA 504 loan is funded, you'll incur various fees totaling approximately 2.15% of your loan amount, plus an attorney closing fee of $2,500. These fees are financed within the debenture loan proceeds so they are not out-of-pocket expenses. Fees are broken down as follows:

1. CDC Processing Fee of 1.5% of net debenture amount
2. Loan Funding Fee paid to SBA of .25% of net debenture amount
3. Underwriting Fee paid to private market for selling the debenture of .4% of gross debenture amount
4. Attorney Loan Closing Fee for preparation of loan closing documents

How do I get the process started?   How do I apply?
Contact the MCDC and we will discuss the project to determine eligibility, then we will forward a checklist of information needed to begin the approval process.

Is My Business Eligible for a 504 Loan?
Businesses with a net worth of no more than $8.5 million and average income, after taxes, of no more than $3.0 million for the last two years are eligible for financing under the SBA 504 program.

Applicants must also:

1. Be an operating business;
2. Be organized as a "for profit" organization;
3. Be located in the United States; and,
4. Be able to demonstrate a need for the desired credit.

Are personal guarantees required?
Guarantees are required of all individuals owning 20% or more of the operating entity or the real estate holding company.

What will be my interest rate on the 504 loan?
The interest rate on the loan will be determined by a market sale of the bond at the time the 504 debenture pool (the pool of 504 loans) is sold and the interest rate will be fixed for the term of the loan. It is this 100% government guaranty that experts predict will enable the bond to be funded at below conventional lending interest rates and on a fixed rate basis. The effective rate (which includes all ongoing fees) is roughly equal to the 10 year Treasury bill rate when the debenture is sold, plus approximately 2.2-3.4%.

What is a certified development company (CDC)?
Certified Development Companies (CDC) serve as the conduit to the SBA for the SBA 504 Loan Program. Banks and Businesses must use a CDC if they wish to access this loan program.

How is a construction project managed?
The SBA does not manage any construction risk. The bank is required to manage the construction process. The SBA does provide an up front commitment to give the bank comfort during the process. Once the construction is complete, the MCDC can move to a final closing.

How long does it take to obtain approval for a 504 loan?
A lot depends on the borrower. With complete information and documents, we can pull together the loan package relatively quickly. The timing often depends on obtaining the appraisal and environmental reports as early as possible.

What is the minimum down payment required?
A minimum down payment of 10% is required for most 504 projects. However, a 15% down payment is necessary when a business is a start-up enterprise (less than 2 years old) or when the project property is considered special-purpose. A 20% down payment is required in situations involving both a start-up business and a special-purpose property.

Aren't SBA loans just for start-ups or high risk companies?
Actually not, many successful small businesses see the benefit of a reduced down payment for a capital expenditure, as well as the opportunity to have extended terms and a up to a 20 year fixed rate. In fact, although not impossible, start up businesses are often difficult to finance, even with the SBA involvement.

Why should I suggest an SBA 504 loan to my client?
The SBA 504 Loan Program offers your client a way to discuss with their lender a way to finance credits that may have certain challenges including collateral issues, or projection based repayment. In addition, the program offers your client a vehicle to offer longer term fixed rate financing with as little as 10% equity down. Plus the SBA loan is subordinated to the lender’s loan, so the collateral risk is significantly mitigated.

Does the equity have to be cash?
No. In fact lenders; family members; sellers of the assets; community foundations; local, state or federal authorities; or others may lend the equity to the borrower. Please contact the MCDC for specific criteria when using non-cash equity.

What are the advantages of an SBA 504 loan?
The SBA 504 loan program allows small businesses to get loans at Fortune 500 interest rates and terms. This powerful financing tool offers many advantages over conventional financing such as:

• Low Down Payment
  504 Loans require between 10% and 20% down. Small businesses receive up to 90% financing, allowing them to preserve working capital for business expansion.
• Low Fixed Rate
  504 Loans utilize fixed rates that are usually one to two percent under conventional financing.
• Low Monthly Payments
  Small businesses pay low monthly loan payments by utilizing 15- to 30-year amortization schedules from a first mortgage lender.
• Savings on Bank Rates
  Due to the favorable financing structure, the participating bank interest rate is often lower than conventional rates.