The SBA 504 Loan Program provides healthy small and medium-sized businesses with long-term fixed rate financing for the acquisition or construction of fixed assets. Projects are financed through a unique public/private partnership that involves private lenders financing 50% of project costs, MCDC covering up to 40% of project costs, and small businesses investing at least 10% of project costs. By taking a secondary collateral position on project assets, SBA provides a “collateral cushion” for the primary lender and reduces the amount of equity normally required of the borrower.
The SBA 504 Loan Program is a “take out” financing program. The SBA offers an up-front commitment to finance a project. The participating private lender provides interim financing, advancing the full amount of project funds during the construction/acquisition period. After the project is completed, the SBA reimburses or “takes out” the participating lender by the amount of the original loan commitment. MCDC loans are actually funded by the sale of 100% federally guaranteed debentures on the open market.
The SBA Loan Program is primarily designed to assist healthy, expanding businesses that have been in operation for more than two years. The following credit requirements apply to such businesses:
- Existing cash flow from business operations greater than debt service needed to pay both existing debt and debt resulting from the proposed loan, and
- Sufficient collateral to secure the loan.
In certain instances, the SBA 504 Loan Program may also be used to finance start-up businesses (i.e. those in operation less than two years). However, such businesses must demonstrate the following:
- Qualified management with industry related work experience,
- Strong marketing plan backed by a thorough market feasibility study,
- Access to an adequate amount of working capital, and
- Minimum 15% equity contribution.
Projects involving a limited or single purpose building require a minimum equity contribution of 15% for businesses in operation more than two years and 20% for businesses in operation two years or less.
Generally, the SBA requires a project to create or retain one new job for each $65,000 of debenture or $100,000 for manufacturing. However, projects with a high community impact and low direct job impact may be considered when achieving one of several Public Policy Goals of the SBA.
Assuming receipt of a complete loan application package, the MCDC often returns SBA loan commitments in 7- 10 business days.