FAQ's

• What are the main advantages of a 504 loan?
• How is a 504 loan deal structured?
• How long does it take to get a 504 loan done?
• What are the fees involved and how does prepayment work?
• Can soft costs be included in a 504 loan?
• Why are different rates quoted for SBA 504 loans?
• What is the maximum loan you can do with a 504?
• How big can the company be?
• How much space does the business have to occupy?
• What kind of equipment can be financed with a 504 loan?
• Can home equity lines of credit be used for the borrower down payment?

Lenders

Borrowers

How much space must I occupy in the building?

According to the SBA guidelines you must occupy at least 51%. If constructing a new building thee occupancy rate rises to 60%.

What kind of equipment can I finance with the 504 and 7a programs?

The equipment life must have a minimum useful life of at least 10 years

When working with the 7a program what if I choose to borrow for Machine & Equipment, Real Estate, and Working Capital. How does the Bank and the SBA determine the maturity?

The SBA may use a blended maturity or a maturity up to the maximum for the asset class comprising the largest percentage of us of proceeds.

What are the requirements for equity injection?

Generally speaking most hard asset aquisitions of companies that have 2 years of prior tax returns are required a 10% equity injection. *Special purchase financing requires a 15% equity injection, i.e. Golf Courses, Bowling Alleys, Swimming Pools. All start up or companies with less than two years of filed Tax Returns are required to inject 20% equity at the time of closing and must posess in the application stage.

*Please call Seedcopa if you have any questions regarding if you feel you loan proceeds will go to a special purchase property.

What is the structure of a typical SBA 504 loan?

Most loan structures are at a 50/40/10 split (depending on the equity injection in most cases). The 50% portion is taken by the bank which takes a first lien position. The 40% portion is provided by the SBA which takes a second lien position and provides a 20 year term and amortization. The 10% piece is the equity injected by the borrower at the time of closing.

Is soft costs eligible use of proceeds in a SBA loan?

Yes, all soft costs can be added back in the loan amount to help the small business owner preserve working capital.

What is a CDC?

Certified Development Companies (CDCs) are non-profit corporations certified and regulated by the Small Business Administration to package, process, close, and service 504 loans. These 504 loans are issued through a partnership with Certified Development Companies (CDC) and private sector, third party lenders.

What is the size standard for the a small business?

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

What are some of the requirements for the SBA?

The Small Business Applicant must:

1. Be an operating business;
2. Be organized for profit;
3. Be located in the United States (includes territories and possessions);
4. Be small (as defined by SBA); and
5. Demonstrate a need for the desired credit.