The SBA 504 Loan Program

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The SBA 504 Loan Program
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SeedcoSouth Eastern Development Company of
Pennsylvania

• 25 year old Certified Development Company (CDC)
  SBA 504 Loan Program Statewide
• Work with borrowers throughout the Commonwealth
• Partner with many Economic Development agencies
  to offer the SBA 504

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Typical 504 Financing Structure

• 50/40/10 90 Financing
• 50 Private sector loan
• 40 504 loan
• 10 Equity (Start-up/Special Use)
• Bank is in first lien position with a 50 LTV
• 40 loan portion is a below market, 20 year fixed
  rate
• Equity injection of 10 preserves working capital
  

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504 Benefits

• Lender Benefits
• Blended interest rate offered to borrower
• More competitive / creative financing
• 50 loan to value
• CRA credits
• No SBA documentation or reporting
• Borrower Benefits
• 90 financing
• 20 year fixed rate
• Below market fixed rates (SBA portion)
• Working capital preservation

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Eligible 504 Project Costs

• Land and building acquisitions
• New construction
• Building renovations/ leasehold improvements
• Major machinery and equipment with a minimum 10
  year economic life

• Related costs, which can include
• Acquisition-related legal expenses
• Bridge loan points and interest
• Construction contingency, up to 10
• Professional fees
• Eligible soft costs

Typically incurred within 9 months of application
submission
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504 Project Structure
Purchase Price 1,000,000
Appraisal/Environmental 4,500
Interim Loan Interest 5,124
Bank Fee on Bridge 4,100
Title Insurance (Bridge/504) 2,100
Transfer Tax 10,000
Total Eligible Project 1,025,824
Bank Loan _at_ 50 512,912
SBA Loan _at_40 410,330
Equity _at_ 10 102,582
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Common 504 Loans

• 51 Owner Occupied Commercial/industrial
  buildings
• Hotels/motels
• Assisted living, personal care and nursing home
  facilities
• Day care and child care facilities
• Automobile and motorcycle dealerships
• Gas Stations/convenience stores
• Fitness centers
• Restaurants
• Agricultural Expansions (dairy, poultry, hog)

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504 Lending Limits

• UP TO 40 of eligible 504 project costs
• 1,500,000 maximum
• 2,000,000 maximum for projects satisfying a
  public policy goal
• 4,000,000 maximum for manufacturing

• Creating (or retaining) job opportunities
• 50,000 per Job
• 100,000 for Manufacturing

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SOP Update 08/01/2008 Revision

• Appraisal
• Included on the initial engagement
• Environmental
• Records search with risk assessment vs. Phase I
• Reliance letter
• Change of ownership/Special use
• Borrowed equity injection
• Franchise Agreement

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Stimulus 02/17/2009 Update

• Job Requirement
• Increase from 50,000 to 65,000
• Third Party Lender Fee
• 0.5 eliminated for 2009
• CDC Fee
• 1.5 CDC fee eliminated for 2009

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504 Rates Fees

• March Funding
• 5.6 Fixed for 20 years
• Third Party Lender Fee
• 0.5 eliminated for 2009
• CDC Fee
• 1.5 CDC fee eliminated for 2009
• Underwriters Fee 0.25
• Funding Fee 0.4

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Bottlenecks

• Borrowers Team Contacts
• Attorney, CPA, Insurance, etc.
• Title Insurance
• Life Insurance / Assignment
• Organizational Documents
• Construction / Sub-Contractors
• Lien Waivers
• Personal History (Form 912)
• Franchise agreement / Other contracts
• Communication - Try to address any special
  circumstance at the initial review of the project

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The SBA 7a Loan Program and Facilitation Services
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The SBA 7a Loan Program

• Utilized to assist in starting, building and
  growing small businesses
• Often utilized in situations such as start-up,
  projection-based, change of ownership, limited
  collateral, lack of equity injection etc
• Up to 90 financing
• Weighted average term
• Maximum funding up to 2MM
• Must be owner occupied
• Limited use for debt refinance

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SBA 7a Use of Proceeds

• Purchase, construct, renovate or improve
  buildings
• Business acquisition or expansion, including
  franchises
• Machinery and Equipment
• Leasehold improvements
• Working capital

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SBA 7a Stimulus Changes

• 90 Guarantee to a maximum of 1,500,000.
• Elimination of Guarantee Fee 2-3.75
• 15,000,000,000 injected to stimulate secondary
  market.
• Premiums banks received have increased.

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SEEDCO SBA 7a Loan USDA Facilitation Services

• Origination Process
• Sales and marketing training consistent with your
  existing delivery system
• SBA Approval Process
• Supplement your existing underwriting
  process/document with SBA required components
• Loan Closing
• Loan Servicing
• Loan Management Administration
• Work together to develop and assist management
  and monitoring practices
• Secondary Market Sales
• Liquidation
• Explain process and act in and advisory capacity
  to assist in the submission to the SBA

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Questions