The SBA 504 Loan Program offers two loan terms; 10 and 20 years. The loan term selected depends on the type of assets financed, with the requirement that the useful life of the assets must equal or exceed the loan term. The participating private lender’s loan must carry a minimum term of 7 years for projects involving machinery and equipment acquisition only, and ten years for projects involving real estate financing.

Fees
There are three types of fees associated with the SBA 504 Loan Program:

• A one time processing fee equal to approximately 2.15% of the 504 loan for 20-year loans (2.15%% for 10-year loans) and legal fees of $2,500 incurred by the MCDC. These fees are built into the actual loan amount and are financed over the term of the loan.
• A one time participation fee equal to ½% of the bank’s senior loan is due at closing.
• An ongoing servicing and SBA fee on the declining loan balance is built into and included in the effective loan interest rates.

Collateral
SBA 504 loans are typically secured by a lien on fixed assets acquired with loan proceeds to reasonably assure loan repayment. The SBA’s lien is subordinate to the private lender’s position. In addition, the SBA requires personal guarantee(s) of the principal(s) whom own 20% of the business.

504 Lending is Growing. Here’s why:

• 504 Loans reduce bank risk with a 50% loan-to-value.
• 504 effectively extends lender limits to serve large clients.
• 504 Loans are eligible for CRA credit.
• 504 Loans broaden the community tax base and create jobs.
• 504 Loans give borrowers the equivalent of corporate bond financing at a fixed rate.

Typical Loan Structure

Source	Amount	%	Rate	Term	Security
Bank	$750,000	50	Variable	7 or 10 years	1st Lien
SBA 504*	$600,000	40	Fixed	10 or 20 years	2nd Lien
Borrower	$150,000	10
	$1,500,000	100