The SBA 504 Loan Program

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The SBA 504Loan Program
A Win-Win for the bank and the small business!
www.seedcorp.com
Updated by SEED Corp. 09/2014
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What is the SBA 504 Loan Program?
It is the Small Business Administrations economi
c development financing program

• Loans are provided to expanding small
  
• businesses to aid in job creation
• SBA loans are guaranteed by the Federal
• Government

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Selling the 504 Option

• If the answer to any of the following questions
  is yes, then give the customer an introduction to
  SBA 504.
• Is working capital important to the success of
  the business?
• Is a long term fixed rate important for cash
  flow?
• Is a low down payment important?
• Does the business want protection in the event of
  a devaluation of real estate?

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Benefits to the Borrower

• Financing for a fixed asset project with as
  little as a 10
• injection.
• Long-term, fixed rate fundsenhancing cash flow
  for
• business.
• SEEDs interest rate as of September 2014 is
• - 5.00 on a 20-year debenture
• - 4.28 on a 10-year debenture
• Ability to include soft costs, equipment and
  furniture and
• fixtures in a real estate projectenabling
  businesses to
• minimize out of pocket expenses and preserve
  cash.
• Lower down payment conserves working capital.

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Benefits to the Bank

• Banks maximum loan-to-value is typically 50,
  minimizing risk and improving liquidity.
• Ability to provide 90 financing to a small
  business client.
• Program allows reliance on financial projections
  for startups and businesses with inadequate
  historic cash flow.
• The banks first mortgage can be sold in the
  secondary market for a premium.
• The CDC is responsible for all of the paperwork!!

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Other Considerations

• There is a prepayment penalty for the first half
  of the term of the debenture.
• The debenture is assumable by another borrower.
• The fees on the 504 loan currently total 2.65
  however, they are financed with the 504 loan.
• The SEED minimum project size is 300,000.
• SEEDs 504 loans range from 120,000 to 5.0
  million for standard industries and up to 5.5
  million for manufacturers and energy efficient
  projects.
• SEEDs other loan programs can be used in
  conjunction with 504 projects, or can replace the
  SBA 504 portion on small projects.

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Structure of a Typical 1 Million Project
Loan of Entity Amount Project
Security Lender 500,000 50 1st
Mortgage SEED/SBA 400,000? 40 2nd
Mortgage Borrower 100,000 10 TOTAL
1,000,000 100 ? Total Debenture
411,000 (rounded up) (Up front fees include
2.65 on 400,000) Projects that involve a
new business and/or special purpose building will
require an additional 5-10 from the borrower.
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Fees Charged by CDC

Financed as part of 504 loan 2.65 of net
debenture

• CDC Processing Fee 1.50
• SBA Guarantee Fee 0.50Paid to SBA- one
  time fee
• Underwriting Fee 0.40
• Covers expense of pooling underwriting 504
  debenture,
• paid directly to Merrill Lynch
• Funding Fee 0.25
• Paid to Central Servicing Agent (Wells Fargo)
• Total 2.65

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Interest Rate
Note rate (as of 9/14
Sale) 2.969 Plus Fees
Annual Central Servicing Agent Fee 0.100
CDC Servicing Fee (SEED .875 SBA .125) ? 1.000
SBA Fee 0.938
Total Fees
2.038 SEEDs Interest Rate (As
of 9/14) 5.007
? SBA Required Servicing Fee This fee can go up
to 1.5. CDCs Servicing Fees vary and impact
the clients rate!

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Legal Fees
Closing costs are financed into the gross
debenture paid to CDCs closing attorney

• Legal Fee Maximum of 2,500
• Other Eligible Closing Costs
• Title Insurance
• Recording fees
• Flood Insurance
• Filing fees and title searches
• Surveys

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Whats needed for SEED to approve a 504 request?

• Purchase sales agreement for project property
  and cost parameters for construction/renovation
  projects.
• Three years of tax returns and/or financial
  statements for the business.
• Information on the borrowers existing debt.
• Personal financial statement and two years of
  personal tax returns for each principal of the
  business (20 or more ownership).
• Property appraisal and environmental assessment
  can be submitted to SEED after approval.
• NO APPLICATION FORM IS REQUIRED!!!
• WE USE ESSENTIALLY THE SAME UNDERWRITING
• DOCUMENTATION AS THE BANK!!!

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The 504 Process

• Borrower or the bank submits a loan package to
  SEED.
• The loan request is presented to SEEDs Loan
  Review
• Committee (meeting or email).
• A SEED commitment letter is sent to the
  borrower and bank.
• Loan is packaged and forwarded to SBA for
  issuance of
• the SBA Authorization (3 day turn around).
• Bank closes on permanent loan and the bridge
  loan. SEED closes simultaneously on turnkey
  projects.
• SEED/SBA payoff the banks bridge loan in 90
  days on
• turnkey projects or after the project is
  completed
• (construction renovation projects).

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Use of Funds

• Fixed-Asset Acquisition or Expansion
  Including
• Purchase land construction of new buildings
• Purchase and/or renovate existing buildings
• Acquire/Install machinery equipment
• Refinance existing fixed asset debt up to 50
  of new SBA 504 Project
• Soft costs related to the project (appraisal,
  environmental, interim interest, other)
• Ineligible uses of funds
• Purchase of trucks and autos
• Working Capital
• Franchise fees

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Banks Permanent First Mortgage

• Permanent financing must be for at least 10
  years
• (on a 20-year debenture) with no balloon
  payments
• during that time.
• Interest rate on the banks mortgage is set by
  bank.
• Bank can charge points.
• One-time fee of 0.50 on the banks first
  mortgage is
• charged by the SBA.

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Occupancy Requirements

• Existing Building
• Business must occupy at least 51
  - may lease out up to 49
• Newly Constructed Building
• Business must initially occupy at least 60
  - must occupy up to 80 within 10 years
• - can sublease 20 indefinitely

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Job Requirements
Create/Retain one job for each 65,000 borrowed
through the 504 Program unless the project meets
a Public Policy Goal.
Public Policy Goals

• Rural Development
• Expansion of Minority, Women or Veteran-Owned
  Businesses (51 owned)
• Expansion of Exports
• Business District Revitalization
• Enhanced Economic Competition
• Restructuring Due to Federally Mandated Standards
  and/or Policies
• Changes Necessitated by Federal Budget Cutbacks
• Manufacturing businesses one job per 100,000
• Energy-consumption reduction of at least 10 or
  sustainable design or equipment and process
  upgrades

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Why YOU Should Consider a SEED/SBA 504 Loan

• Up to 90 financing for project
• Lower down payment for client improved liquidity
  for bank
• SEED provides quick efficient turn around (SBA
  approved for the Abridged Submission Method)
• Note is assumable by another borrower
• SEED offers a low 504 rate provides loans up to
  200,000 at 5 fixed to assist with working
  capital or replace the down payment
• SEED is responsible for all the paperwork No
  application form to fill out

www.seedcorp.com