Frequently Asked Questions

What can the 504 Loan program do for me?

The 504 loan program gives a business owner access to long-term, below market-fixed interest rate financing that preserves working capital for their business.

Who is eligible?

Independently owned for-profit businesses with net worth of $15 million or less that has had an average annual net profit after taxes of $5 million or less for the previous two years.

What are the terms?

The SBA 504 loan program offers fixed rate interest and terms of 10 or 20 years on real estate and 10-year terms for equipment.

What is the maximum loan amount?

The maximum loan amount for the SBA 504 portion is $5 million. Five and a half million dollars is the maximum for manufacturing or companies that meet the public policy goal of reduction in energy consumption. This means your 504-eligible project could be as large as $13.75 million.

Is there a prepayment penalty?

Yes. However, the prepayment penalty amount decreases each year and is gone after 5 years on a 10-year loan and is gone after 10 years on a 20-year loan. (There is no prepayment penalty after the first half of the 504 loan term.)

How much do I have to invest in my project?

A 504 project “typical” down-payment is 10% from the borrower. However, the SBA requires higher down payments for both start-up businesses and businesses operating in special-purpose properties (like a car wash or movie theater).

Typical borrower injection -	10% injection
Additional, if start-up -	5% injection
Additional, if special-purpose building -	5% injection

Does my business have to occupy 100% of the building?

No. Your operating company must occupy 51%. However, your company must qualify for the loan without using income from your building tenants.

Is an applicant automatically ineligible if they have had a bankruptcy?

NO. If the bankruptcy was not recent and there is satisfactory explanation for it, you may be eligible. Borrower is eligible only if discharged from bankruptcy or has a confirmed bankruptcy plan.

Is my loan assumable?

YES. SBA 504 loans are fully assumable. Contact us for more information. Note: Release of the original borrower personal guarantee is NOT automatic with the loan assumption.

Is it true that the SBA 504 loan requires a lot of paper work?

NO. SBA streamlined the program process and now closely resembles your bank’s application requirements.

If the operating company is leasing the building from the real estate holding entity, what documents are needed?

Leases
If the borrower is different from the operating company there must be a lease between the borrower and the operating company for 100% of the property being financed with the SBA 504 loan. If there are subleases the subleases, must be between the operating company and the third party tenants.

Subordination Agreements
Every lease and sublease must be made subordinate to the 504 Deed of Trust. The Borrower and the Operating Company must sign the Subordination Agreement related to their lease. The subtenants must also sign a subordination Agreement.