The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides small businesses requiring “brick and mortar” financing with long-term, fixed-rate financing for the acquisition or refinance of commercial real estate. 504 loans are facilitated through Certified Development Company’s (CDC). A CDC is a private, nonprofit corporation set up to contribute to the economic development of its community and they work with SBA and private sector lenders to provide financing to small businesses through the 504 program. Projects are secured by a 1st and a 2nd Deed to Trust/Mortgage on commercial real estate, meeting SBA qualifications, having a maximum aggregate Loan to Value between of 90% depending on the property type.
Typical Project Structure
• 50% LTV Conventional 1st Deed of Trust/Mortgage
• 40% SBA/CDC 2nd Deed of Trust/Mortgage (35% for special use)
• 10% Equity Injection (Additional equity injection may be required for special use or start-up properties)
Maximum Loan Amount
• 1st TD – Call to discuss
• $5,000,000 2nd Deed of Trust/Mortgage when meeting the job creation criteria, community development goal
• $5,500,000 2nd Deed of Trust/Mortgage for small manufacturers or for meeting SBA’s energy savings goals
Typically it takes 45 to 90 days after execution of the 1st DOT Conventional loan for the SBA to fund the SBA 2nd Deed of Trust/Mortgage. To facilitate a smooth closing BLC will provide an interim loan for 90 days that is paid off with the SBA Debenture. BLC requires concurrent closing with the SBA. Interest rates on the interim note are typically 7-8%.
Maturity and Amortization
• Conventional 1st Deed of Trust/Mortgage – Up to 25 years
• Interim Note – Up to 90 day term with interest only payments
• CDC/SBA 2nd Deed of Trust/Mortgage – Up to 25 years
• Multi-Purpose Properties – Up to 90% LTV (50% Conventional 1st / 40% CDC/SBA 2nd / 10% equity injection)
• Limited or Special Purpose Properties – Up to 85% LTV (50% Conventional 1st / 35% CDC/SBA 2nd / 15% equity injection)
SBA 504 Eligibility
The subject business/borrower must be operated for profit and fall within the size standards set by the SBA (Tangible Net Worth less than $15MM and Average Net Income does not exceed $5MM after taxes for the preceding two years). Loans cannot be made to entities engaged in speculation or investment in rental real estate.
SBA 504 Eligible Use of Proceeds
• 504 Loans funded by BLC will be primarily used for the refinance or acquisition of commercial real estate. Other eligible uses of 504 loan proceeds such as construction of new facilities or modernizing, renovating or converting existing facilities, and the purchase of long-term machinery and equipment can be considered by BLC in conjunction with a commercial real estate acquisition-financing request.
SBA 504 Ineligible Use of Proceeds
The 504-loan program cannot be used for working capital, inventory, or business acquisitions.
Eligible Property Types
• Multi-Use: Warehouse, Office, Industrial, Medical, Flex, Auto Body, Retail.
• Special Use: Mini-Storage, Cold Storage, B&B, Funeral Homes, Bowling Alleys, Urgent Care Centers, Surgery Centers, Auto Repair, Car Dealerships, Executive Suites, Wineries.
Rate Option / Fees
• Conventional 1st Deed of Trust/Mortgage – Interest rate options include variable, one (1), two (2), three (3), four (4), and five (5) year adjustable rate options (fixed rate options can be considered on a case by case basis).
• Interim Loan – 7-8% with 2% Loan Fee.
• CDC/SBA 2nd Deed of Trust/Mortgage – Rate is tied to the market rate for the five and 10 year U.S. Treasury with rates fixed at the time of debenture funding for the life of the loan.
• CDC/SBA fees total approximately 3 percent of the SBA Debenture and may be financed with loan proceeds.
• Prior Ownership and Management Experience
• Minimum FICO of 650
• All loans are Full Recourse and require the personal guarantee of any and all individuals or entities holding 20% ownership interest or more.
• 1.1x Minimum Debt Coverage Ratio (DCR) for the most recent FYE and Interim period is required, or justifiable projections.
• The subject property must be occupied by a minimum of 51% by the Small business Concern (60% for new construction).