504 Loan Program
The SBA 504 Loan Program partners the SBA with a third-party lender, and the borrower to finance the acquisition of fixed assets that have a useful life of at least 10 years. The 504 loans are funded monthly via a bond (debenture) the SBA sells in the private capital market.
BENEFITS TO THE SMALL BUSINESS
- Low Down Payment – As low as 10% helps preserve cash reserves for the business
- Long Repayment Terms– 10 or 20-year fully amortized loan helps businesses to manage expenses
- Competitive Fixed Rates – Fixed rates for the life of the loan helps reduce interest risk to the business
- Debt Refinancing – Eligible debt may be refinanced (additional qualifications apply)
504 LOAN STRUCTURE
The standard 504 loan structure is:
- BORROWER – Contributes 10% of the total project cost
- HEDCO LDC – Finances 40% of the total project cost
- LENDER – Finances 50% of the total project cost
Additional down payment by the borrower is required if the business has been operating for less than 2 years including change in ownership and/or the real property is considered a limited/special-purpose property. Contact HEDCO for additional information.
The borrower’s equity can be from personal or business cash, equity in the project land previously acquired, loan on personal assets or seller carry back note.
504 LENDING LIMITS
The lending limits for the 504 loan amount is:
- $5 million – All eligible projects
- $5.5 million per project – Renewable energy/green energy projects (i.e. photiovoltaic systems, etc.) or energy efficient proejcts that result in a 10% reduction in energy consumption or manufacturing projects
Here’s how it works: The lender initially finances their portion and the HEDCO LDC- SBA 504 loan’s portion of the project cost. Upon completion of the project (including the filing of certifications/notices and the lapse of the waiting period without any incidents) HEDCO LDC will pay down the lender the 504 loan portion. The borrower will then have two separate loans; one with the lender, and another with the SBA since the terms differ.