SBA 504

The US Small Business Administration 504 Loan or Certified Development Company ( CDC) program is designed to provide financing for the purchase of fixed assets, which usually means real estate, buildings and machinery, at below market rates. As part of RBAC’s mission to promote the economic development and the growth of businesses. The 504 program is a participation program that allows RBAC to partner with other financial institutions to allow the business owner to purchase the fixed assets that will help their business with little money down. The business owner puts a minimum of 10%, a conventional lender (typically a bank) puts up 50%, and RBAC puts up the remaining 40%. The maximum  RBAC  loan portion  amount  is $5.5 million ($5 million for meeting SBA-defined policy goals, and $5.5 million for manufacturers and some energy-related policy goals).

How Financing Is Structured

A bank or other lender finances 50% of the project cost and takes a first mortgage (lien) position on the assets financed. RBAC, through the SBA 504 loan, finances up to 40% of the project cost and takes a second mortgage position. The borrower then contributes a down payment of as little as 10%. If start up business, borrower is required to commit extra 5% (total of 15% initial injection). If building is also a non-conventional building i.e. gas station, hotel, borrower is required to commit an extra 5% (total of 20% initial injection).

All related soft cost such as architectural fees, appraisal of real property or machinery, environmental studies, or contingency interest can be rolled into the loan.

I, sincerely, am at a loss for words that would accurately express my level of gratitude for the help that you poured towards us.

Your professional and financial assistance will resonate for years to come in the fabric of Frontline as a corporation, the several hundred Frontline’s customers and vendors and the families of our 26 employees that proudly call Frontline their home.

Your entire team did an outstanding job in requesting, and diligently reviewing a ton of documents and all in a very short time frame to accommodate our deadline.

Alfredo
Frontline Industries

Key Advantages of SBA-504 Loan

  • A minimal down payment by the small business owner, as low as 10%, borrowing up to 90% of the total financing needs, thus preserving cash for the business.
  • Long term financing, over 10, 20 or 25 years, which enhances the cash flow of the company and avoids balloon payments and mid- term negotiation of the loan that may result in higher interest rate and payments, the borrower’s monthly loan payment is more affordable.
  • Fixed Low Rates for life of the loan on RBAC portion of the loan
  • Below Market fixed interest rates on 504 debentures.
  • Projected income consideration – SBA lenders consider projected income of a business in addition to historical cash flows. This is particularly advantageous for growing businesses

Loan Funds Can be used to

  • Purchase land;
  • Purchase existing buildings;
  • Refinance your existing commercial mortgage
  • Purchase long-term machinery and equipment;
  • Purchase improvements (including grading, street improvements, utilities, parking lots and landscaping); or
  • Build new facilities or modernize, renovate or convert existing facilities.

Who Is Eligible

  • For Profit businesses
  • Must be at least 51% owner occupied
  • Business with tangible net worth less than 15 Million

A 504 loan cannot be used for

  • Working capital or inventory;
  • Consolidating, repaying or refinancing debt (although for a portion of the project, you may refinance debt associated with buying or renovating equipment or facilities); or
  • Speculation or investment in rental real estate.

Wholesale Distributor of Goods

The proceeds were used to finance the acquisition of land and a building to support expansion of the business. The owners were able to ONLY put down 10% because this was an already existing business. This preserved the cash for working capital within the business

 

Start- up Daycare Facility purchase of $800,000

The breakdown of the proceeds also reflects the 50, 35, 15 structure of the SBA 504 Program. A employee of the daycare purchased the business from her employer ,with personal funds and used the 504 loan program to finance the commercial property. This project allowed the daycare to renovate the property and expand the capacity of the location.

 

Industrial Printing Company

Under the SBA 504 program, it is also possible to acquire “hard equipment.” In general these are machines with a long life span. A family owned company stopped outsourcing some of its services to other firms and decided to capture that income as well. For this, the purchase of a large sized printing press was necessary, which had a purchased and installed cost of $1,800,000. The firm will generate more revenues and provide extra services to its customers.

 

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