Commercial Loan SBA 504

What are the main advantages of SBA 504 loan?

  • low down-payment requirements

    long repayment terms (up to 30 years on first mortgage, and 20 years on the second mortgage)

    projected income is considered, not just historical cash flows

    collateral may be less critical in loan qualification decisions.

How is a 504 loan deal structured?

We provides a 50% loan-to-cost first mortgage loan, and the SBA provides a second mortgage loan for up to 40% of the total costs. The borrower is required to come up with the balance (10-20%) in the form of cash or imputed equity (for construction deals where the land is already owned). Most 504-financed purchases are for office, retail or industrial buildings.

How long does it take to get a 504 loan done?

Straight purchases usually require no more than 60 days. If construction is involved, this can extend the process. Construction and tenant improvements are typically financed via a bridge loan. The permanent 504 loan takes out the bridge loan.

What are the fees involved and how does prepayment work?

The fees for a 504 loan, which are financed in the loan, are approximately 2.125%. There’s also a .50% guarantee fee on the first mortgage loan (not including the origination fee), and a fee for legal review, doc prep, and other normal closing costs. Weighted average fees for both loans are typically 1.5%.

Can soft costs be included in a 504 loan?

Yes, "soft costs" (e.g. appraisals, environmental, construction interest, closing costs) also can be financed in the 504 loan, allowing the small business to preserve working capital.

What is the maximum loan you can do with a 504?

We can provide a 1st mortgage loan up to $7 million, and the SBA 2nd mortgage loan can go up to $5 million, for a combined total of $12 million. For projects that meet certain public policy goals, the 504 loan can go up to $5.5 million, for a total of $12.5 million.

How big can the company be?

The business tangible net worth must be less than $15 million, and after-tax income must be $5 million or less, on average, for the prior two years.

How much space does the business have to occupy?

The business must occupy 51% of an existing building being purchased, or 60% of a newly constructed facility.

Metric Guidelines
Maximum Loan Amount $12MM between 1st and SBA 2nd mortgage
Maximum Maturity 30 years (For real estate deals only). Other varies.
Minimum Personal Credit 660 FICO Score, No bankruptcy, Lower scores on a case-by-case basis
Loan to Value/Cost 90% Multi-Use, 85% Semi-Generic, 85% Special Use (Subtract 5% for start-ups)
Minimum Borrower Equity 10% for Multi-Use, 15% for existing Special Use and Semi-generic, 20% for start-up Special Use and Semi-generic
Minimum DSC 1.10X Multi-Use, 1.25X Special Use (For projection based deals, minimum DSC is for when property is stabilized. We may require payment reserve to be funded up front for amount of time needed to stabilize).
Property Types to Avoid Golf Courses, Gas Stations, Car Washes, Restaurants.
Security/Collateral Position 1st Mortgage/Deed of Trust UCC-1 Lien on FF&E (Additional collateral may be required).
Prepayment Penalty Minimum 5 years(rates may varies)
Guarantees Full recourse to all owners of 20% or greater.


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