Texas Certified Development Company Frequently Asked Questions

Frequently Asked Questions
loans@txcdc.com

1. What is the purpose of the SBA 504 loan program?
The 504 program is an economic development program intended to assist businesses to acquire the facilities and equipment they need to grow. By assisting in the growth of a business, 504s assist in job creation, which is the primary goal of the program.

2. What is a Certified Development Company?
A Certified Development Company (CDC) is a company licensed by the U.S. Small Business Administration to originate, close and service 504 loans.

3. What is the relationship between TCDC and SBA?
TCDC is licensed by the SBA to administer the 504 loan program in Texas. TCDC originates packages, submits the loan for SBA approval, then closes and services the loan.

4. Why should I work with Texas CDC?
TCDC is a for-profit economic development company established in 1981. To date, TCDC and its lending partners have provided over $350 million in financing to Texas businesses. TCDC maintains a network of highly experienced loan consultants (most with over 20 years of banking/SBA lending experience) throughout Texas to guide you from the initial information gathering process through the loan closing.

4. Why should I work with Texas CDC?

TCDC is a for-profit economic development company established in 1981. To date, TCDC and its lending partners have provided over $350 million in financing to Texas businesses. TCDC maintains a network of highly experienced loan consultants (most with over 20 years of banking/SBA lending experience) throughout Texas to guide you from the initial information gathering process through the loan closing.

5. How much can I borrow?
TCDC specializes in commercial real estate and equipment loans from $150,000 to $10,000,000.

6. How much down payment is required?
For existing businesses (defined as having two full years of operations) purchasing multi-purpose office/industrial/warehouse properties, the down payment required is 10%. Start-up businesses are required to put down 15%. Existing businesses purchasing single purpose properties (such as motels, convenience stores, and car wash facilities) are also required to put down 15%. Start up businesses purchasing single purpose properties are required to put down 20% of total project costs.

6. How much down payment is required?

For existing businesses (defined as having two full years of operations) purchasing multi-purpose office/industrial/warehouse properties, the down payment required is 10%. Start-up businesses are required to put down 15%. Existing businesses purchasing single purpose properties (such as motels, convenience stores, and car wash facilities) are also required to put down 15%. Start up businesses purchasing single purpose properties are required to put down 20% of total project costs.

7. Do I qualify for a 504 loan? Is my company eligible?
Most businesses are eligible providing they meet the following criteria: Business must be owner occupied. This is defined as occupying at least 51% of an existing piece of real estate being purchased and 60% of a building being constructed. Business and affiliates must have net worth less than $7.5 million, and net profits of less than $2.5 million (averaged over two years). SBA excludes certain types of business enterprises. These include rental properties such as apartments and shopping centers, businesses that are primarily speculative in nature (such as oil drilling), private clubs, sexually oriented businesses, and businesses that promote religion as their primary purpose. Contact a TCDC consultant to discuss the eligibility of your business.

7. Do I qualify for a 504 loan? Is my company eligible?

Most businesses are eligible providing they meet the following criteria: Business must be owner occupied. This is defined as occupying at least 51% of an existing piece of real estate being purchased and 60% of a building being constructed. Business and affiliates must have net worth less than $7.5 million, and net profits of less than $2.5 million (averaged over two years). SBA excludes certain types of business enterprises. These include rental properties such as apartments and shopping centers, businesses that are primarily speculative in nature (such as oil drilling), private clubs, sexually oriented businesses, and businesses that promote religion as their primary purpose. Contact a TCDC consultant to discuss the eligibility of your business.

8. What types of projects does TCDC typically finance?
Typical projects include office buildings for a wide variety of companies, manufacturing facilities, warehouse facilities, medical practices, hotels, motels, gas station/convenience stores, restaurants, car wash facilities among others.

9. Why do I need a participating lender?
TCDC is able to provide up to 40% of the total project cost under the rules of the 504 program. TCDC works with your lender (or will help find a lender if you don't have an established banking relationship) who provides 50% of the total project costs.

10. How is a typical financing structured?
In the example provided, $1 million of total project costs to purchase an office building are allocated as follows: Participating Lender (1st Lien), $ 500,000 (Rate and terms negotiated with lender), TCDC (2nd Lien), $ 400,000 (Rate fixed when debenture sells), Borrower Contribution (Cash or land equity), $ 100,000, Total Financing $1,000,000. Example assumes an existing business purchasing a new facility. Down Payments are higher for start-up businesses and for single purpose properties.

10. How is a typical financing structured?

In the example provided, $1 million of total project costs to purchase an office building are allocated as follows: Participating Lender (1st Lien), $ 500,000 (Rate and terms negotiated with lender), TCDC (2nd Lien), $ 400,000 (Rate fixed when debenture sells), Borrower Contribution (Cash or land equity), $ 100,000, Total Financing $1,000,000. Example assumes an existing business purchasing a new facility. Down Payments are higher for start-up businesses and for single purpose properties.

11. What are the benefits of the SBA 504 loan program?
The SBA 504 loan program provides 10 or 20 year loans with below market fixed rates, up to 90% financing, down payments as low as 10%, and permanent financing with no balloon payments or early call provisions.

12. Why should I choose an SBA 504 loan? My bank is willing to finance my project with 20% down.
SBA 504 loans have many advantages over conventional bank loans. These include the ability to conserve working capital by putting down 10% instead of 20%. Also, the 504 program finances all of your costs, not just the hard costs of your project. Some bank loans advertise a low down payment, but after the soft costs are paid, you actually put 30-40% down! Conventional bank loans typically have balloon provisions, early call features, and variable rates of interest. The 504 program allows you to fix the rate on a portion or on your entire loan amount. This can save you many thousands of dollars over the years in lower interest rates and give you piece of mind because your interest rate is not fluctuating all the time. Once in place, 504 loans cannot be called unless you stop making payments. Conventional loans may allow the lender to call your note if you have a bad quarter or year. SBA will not foreclose unless you fail to make the required payments. Conventional loan balloon payments may force you to refinance under unfavorable market conditions. A lender may also be unwilling to renew your loan. 504 loans provide the certainty and stability your business needs to succeed.

12. Why should I choose an SBA 504 loan? My bank is willing to finance my project with 20% down.

SBA 504 loans have many advantages over conventional bank loans. These include the ability to conserve working capital by putting down 10% instead of 20%. Also, the 504 program finances all of your costs, not just the hard costs of your project. Some bank loans advertise a low down payment, but after the soft costs are paid, you actually put 30-40% down! Conventional bank loans typically have balloon provisions, early call features, and variable rates of interest. The 504 program allows you to fix the rate on a portion or on your entire loan amount. This can save you many thousands of dollars over the years in lower interest rates and give you piece of mind because your interest rate is not fluctuating all the time. Once in place, 504 loans cannot be called unless you stop making payments. Conventional loans may allow the lender to call your note if you have a bad quarter or year. SBA will not foreclose unless you fail to make the required payments. Conventional loan balloon payments may force you to refinance under unfavorable market conditions. A lender may also be unwilling to renew your loan. 504 loans provide the certainty and stability your business needs to succeed.

13. How long must I be in business to obtain a 504 loan?
Typically, you must be in business for two years. Those with significant management experience in an industry may come to TCDC with a start-up project, but comprehensive business plans and/or independent feasibility studies on the viability of the business will be required.

14. How do I apply?
Contact a TCDC consultant near you using our web based staff directory (www.txcdc.com/consult.htm) or call us directly at 1-800-486-8620.

15. How much paperwork will there be?
The paperwork necessary to obtain and close a 504 loan is similar to what a conventional lender requires. TCDC's highly experienced consultants will handle the preparation of all of the SBA forms for you, so that your time is spent running your business. SBA typically requires real estate appraisals and environmental studies to be performed prior to closing of your transaction.

16. I heard SBA loans are hard to get. How quickly can I close?
Obtaining an SBA loan is easier than ever before. Once a completed package is received, the necessary loan approvals can be obtained within 30 days and the loan can be closed in as soon as 45 days.