This is an old revision of this page, as edited by 63.241.202.8 (talk) at 21:30, 15 January 2010 (Corrected higher loan limits, amended eligibility requirements). The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.
Revision as of 21:30, 15 January 2010 by 63.241.202.8 (talk) (Corrected higher loan limits, amended eligibility requirements)(diff) ← Previous revision | Latest revision (diff) | Newer revision → (diff)The US Small Business Administration 504 Loan or Certified Development Company program is designed to provide financing for the purchase of fixed assets, which usually means real estate, buildings and machinery. As part of its mission to promote the development of businesses, the SBA offers a number of different loan programs tailored to specific capital needs of growing businesses. Typically, a 504 project includes: •A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost; •A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture with a junior lien covering up to 40 percent of the total cost; •A contribution from the borrower of at least 10 percent equity. Certified Development Companies are established under the 504 code as non-profit corporations set up to support economic growth in their local areas. There are a few hundred such CDCs nationwide. The maximum SBA loan/debenture amount is $1.5 million when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $65,000 provided by the SBA except for small manufacturers, which have a $100,000 job creation or retention goal (see below). The maximum SBA debenture is $2.0 million when meeting a public policy goal. The maximum debenture for small manufacturers is $4.0 million. A small manufacturer is defined as a company that has its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States. To qualify for a $4.0 million 504 loan, the business must meet the definition of a small manufacturer and:
Eligibility
To be eligible for a CDC/504 loan, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $8.5 million and does not have an average net income in excess of $3.0 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
504 loans are intended for owner occupied businesses; for the acquisition of an existing building the operating company must occupy at least 51% of the usable space, in the case of new construction the operating company must occupy at least 60% of the space and plan to occupy at least 80% of the space over the next ten years.
Structure
This article may lack focus or may be about more than one topic. Please help improve this article, possibly by splitting the article and/or by introducing a disambiguation page, or discuss this issue on the talk page. (November 2009) |
This article may be too technical for most readers to understand. Please help improve it to make it understandable to non-experts, without removing the technical details. (November 2009) (Learn how and when to remove this message) |
A small business can get a fixed rate SBA-504 loan for real estate construction or purchases or equipment purchases when a banker is willing to structure the loan in the following way: The bank agrees to create a loan for 50% of the project amount. This loan takes first lien position and is priced at market rates with a term no less than that of the 504 portion of the loan. The applicant business is required to contribute equity in the amount of 10 to 20% (50 to 66% less down payment than conventional loans). A Certified Development Company (CDC) provides the remaining 30 to 40% of the total project costs through the 504 loan, taking second lien position. Total project costs can include the costs for land and existing building or equipment; hard construction/renovation; fixtures and equipment; furniture, soft costs; and closing costs. Project costs can be financed in their entirety with a 504 loan, whereas most commercial bank loans only finance a percentage of the purchase price/appraised value and borrowers would have to come up with closing and soft costs out of pocket. For the first mortgage--the bank loan--the term is 25 years at market rates, and is fully amortizing. For the second mortgage--the CDC portion--the loan will be a 20-year fixed rate term for real estate projects or a 10 year fixed rate term for equipment. Weighted averages are used to determine the term of the loan when the project includes both real estate and equipment. For example if 55% of the total project costs are comprised of the real estate costs and 45% equipment, the project qualifies for the 20-year term. Additionally if borrowers decide to sell their property, 504 loans are assumable.
References
- Tyson, Eric (2008). Small Business for Dummies (3 ed.). Wiley. p. 88. ISBN 978-0470177471.
{{cite book}}
:|access-date=
requires|url=
(help); More than one of|pages=
and|page=
specified (help); Unknown parameter|coauthors=
ignored (|author=
suggested) (help)
External links
This business-related article is a stub. You can help Misplaced Pages by expanding it. |