SBA 504 Loan Program
The SBA 504 Loan Program enables growing businesses to secure long term, fixed rate financing when making a fixed asset acquisition. Enterprise Development Corporation is Certified Development Company (CDC) that administers the SBA 504 Loan Program in Central Missouri.
With the 504 loan, small business gain the following benefits:
1. Low Down Payment (10% for most businesses)
2. Long Maturities (10 years for equipment and 20 years for real estate)
3. Fixed Interest Rate for the life of the loan
Qualifying Project Costs
Eligibility Requirements
Almost any type of business is eligible: manufacturer, distributor, retailer, ect. Start-ups as well as existing businesses are eligible.
In order to qualify, businesses must:
Each 504 Loan appplication has three elements:
1. The borrower provides a minium of 10% of the project total (Start up companies and special use facilities will require 15-20%).
2. A Bank lends 50% of the project total cost.
3. SBA lends a maximum of 40% of the project total (up to $5 million), or the balance of the project.
The interest rate on the SBA loan is fixed at a slightly higher rate than a 5 or 10 year Treasury bond. The interest rate on the bank loan is negotiated by the borrower and the bank and is typically floating. This combination of fixed and floating interest rates provides an effective hedge against rate fluctuation. If rates increase, the borrower is locked in on the SBA portion of the project. If the rates decrease, the bank rates adjusts downward on the bank's portion of the project.
Fees
1. Processing Fees - The processing fees compensate each service provider in the 504 process, which includes the CDC, SBA, underwriters and fiscal agent. Processing fees are one-time only fee and are equal to approximately 2.5% of the 504 loan. Processing fees are financed as part of the SBA loan.
2. Legal fees - Enterprise Development Corporation uses a bond attorney to review the closing documents, as the SBA 504 loan closing is very similar to a bond funding. The amount that our attorney charges is $2500, which is also financed as part of the SBA loan.
3. Guaranty/Servicing fees - The annual guaranty/servicing fee in approximately 1.474% of the outstanding balance of the loan. These fees are included in the effective interest rate that is quoted to you by Enterprise and will be automatically deducted by the Central Servicing Agent with your monthly payment.
Collateral
In addition to the fixed assets being purchased, personal guarantees from anyone owning more than 20% in either the operating company or real estate holding company and/or corporate guarantees are requred. Additional collateral is sometimes requested and may include personal assets and life insurance.
Assumption
If the 504 assets are sold or the original borrowing entity is sold or dissolved, the SBA 504 loan can be assumed if the assuming party meets all credit and eligibility standards of the CDC and SBA. An assumption fee of 1% of the outstanding balance of the loan is charged to the assuming party.
Prepayment
The first mortgage can generally be prepaid without penalty. The SBA loan can be prepaid, but must be prepaid in full. For the first nine years (for 20 year loans) and for the first four years for a 10 year loan), there is a prepayment penalty, which begins at the funding interest rate and staightline declines to zero at year 10 (year 5 for a 10 year loan).
Application Form
For a SBA 504 loan application, Click here.
With the 504 loan, small business gain the following benefits:
1. Low Down Payment (10% for most businesses)
2. Long Maturities (10 years for equipment and 20 years for real estate)
3. Fixed Interest Rate for the life of the loan
Qualifying Project Costs
- Land acquistion and improvements
- Purchase of an existing building and improvements
- New building construction
- Machinery and Equipment
- Furniture and Fixtures
- Professional fees directly attributable to the project such as surveying, engineering, appraisal and architectural
- Interim Financing Costs
- Refinancing of existing debt (up to 50% of the total project costs can be used to refinance existing fixed asset debt)
Eligibility Requirements
Almost any type of business is eligible: manufacturer, distributor, retailer, ect. Start-ups as well as existing businesses are eligible.
In order to qualify, businesses must:
- Occcupy at least 51% of the floor space in an existing building
- If constructing a new building, the business must occupy at least 60% of the floor space, with reasonable projections of growth indicating that the business will need the excess space. Only 20% of the floor space may be rented out to a permanent third party.
- Each owner of 20% or more of the business must guaranty the loan.
- The project must meet one of the following public policy goals: creation of jobs, ownership by minorities and women, rural development, public policy energy goals, and/or being located in a distressed area.
- The business must be a for-profit and must average less than $5 million in profits after taxes and have less than $15 million in tangible net worth.
- There is no project maximum size under the 504 loan since there is no limit on the bank loan. The maximum 504 loan is $5 million, $5.5 million for manufacturing loans.
- Minimum project size is $125,000
Each 504 Loan appplication has three elements:
1. The borrower provides a minium of 10% of the project total (Start up companies and special use facilities will require 15-20%).
2. A Bank lends 50% of the project total cost.
3. SBA lends a maximum of 40% of the project total (up to $5 million), or the balance of the project.
The interest rate on the SBA loan is fixed at a slightly higher rate than a 5 or 10 year Treasury bond. The interest rate on the bank loan is negotiated by the borrower and the bank and is typically floating. This combination of fixed and floating interest rates provides an effective hedge against rate fluctuation. If rates increase, the borrower is locked in on the SBA portion of the project. If the rates decrease, the bank rates adjusts downward on the bank's portion of the project.
Fees
1. Processing Fees - The processing fees compensate each service provider in the 504 process, which includes the CDC, SBA, underwriters and fiscal agent. Processing fees are one-time only fee and are equal to approximately 2.5% of the 504 loan. Processing fees are financed as part of the SBA loan.
2. Legal fees - Enterprise Development Corporation uses a bond attorney to review the closing documents, as the SBA 504 loan closing is very similar to a bond funding. The amount that our attorney charges is $2500, which is also financed as part of the SBA loan.
3. Guaranty/Servicing fees - The annual guaranty/servicing fee in approximately 1.474% of the outstanding balance of the loan. These fees are included in the effective interest rate that is quoted to you by Enterprise and will be automatically deducted by the Central Servicing Agent with your monthly payment.
Collateral
In addition to the fixed assets being purchased, personal guarantees from anyone owning more than 20% in either the operating company or real estate holding company and/or corporate guarantees are requred. Additional collateral is sometimes requested and may include personal assets and life insurance.
Assumption
If the 504 assets are sold or the original borrowing entity is sold or dissolved, the SBA 504 loan can be assumed if the assuming party meets all credit and eligibility standards of the CDC and SBA. An assumption fee of 1% of the outstanding balance of the loan is charged to the assuming party.
Prepayment
The first mortgage can generally be prepaid without penalty. The SBA loan can be prepaid, but must be prepaid in full. For the first nine years (for 20 year loans) and for the first four years for a 10 year loan), there is a prepayment penalty, which begins at the funding interest rate and staightline declines to zero at year 10 (year 5 for a 10 year loan).
Application Form
For a SBA 504 loan application, Click here.
