What are the size requirements for the 504 Loan Program?
The size requirements for the SBA 504 Loan program are:
- Tangible net worth of $15 million or less (including all affiliates and subsidiaries) AND
- Average after-Fed. tax net profit of $5 million or less (Including all affiliates/subsidiaries -most current 2 years)
What is the borrower’s down payment and how is a 504 loan structured?
The minimum financing percentage for each party and standard 504 loan structure is:
- BORROWER – 10% of the total project cost
- HEDCO LDC – 40% of the total project cost
- THIRD-PARTY LENDER – 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 is a limited-purpose property. Contact HEDCO for additional information.
Does the third-party lender have to be a local financial institution?
No, the third-party lender can be a financial institution (domestic or foreign), private lender or investor or Federal (non-SBA), State or Local government
What are the down payment requirements for the borrower?
The standard down payment is 10% of the total project cost. However, if the business has been operating less than 2 years or is a limited-purpose property the borrower will need to inject an additional 5% equity for a 20% down payment. And, an additional 5% is required if the borrower is both operating less than 2 years AND is a limited-purpose property.
Is there a limitation on the 504 loan amount?
The lending limits for the 504 loan amount only is:
- $5 million – all eligible projects
- $5.5 million per project – renewable/green energy projects, energy efficient conversion projects that result in a 10% reduction in energy consumption, and manufacturing projects
What are the fees?
All loan fees are either included in the 504 debenture or built into the monthly loan payments. Thus, no additional cash is required from the borrower. The fees are as follows:
One-time upfront fees (included in the gross 504 loan amount)
- Funding Fee for the debenture: .25% of the net 504 loan amount
- Underwriting Fee for the debenture: .40% of the net 504 loan amount
- Processing Fee (CDC): 1.50% of the net loan amount
Monthly loan servicing fees (included in the monthly loan payments)
- HEDCO LDC: .625% of the gross 504 loan amount
- Wells Fargo CSA (Servicing Agent): .100% of the gross loan amount
- SBA Annual Fee: .914% of the gross loan amount
What is the personal liquid asset limitation?
The SBA has eliminated the limitation on personal liquid assets as of April 21, 2014.
Are franchises eligible?
Franchises may be eligible for the 504 Loan Program. However, the franchise agreement is subject to review and approval by the SBA. For additional information, contact HEDCO LDC.
Can a business owned by a non-U.S. citizen participate in 504 Loan Program?
The SBA can provide financial assistance to businesses that are at least 51% owned and controlled by a person who is a non-U.S. citizens provided the person is lawfully in the United States. Other requirements may be apply. For additional information contact HEDCO LDC.
Can a business participate in the program more than once?
A business may participate more than once in the 504 Loan Program. Loans may run concurrently with each other as long as the aggregate amount of the loans do not exceed the program’s lending limits. The federal funding limitation may be applicable for projects that obtain funding from other federal sources. For additional information contact HEDCO LDC.
Can the down payment be borrowed funds?
The borrower’s equity can be from borrowed funds however, it is subject to certain requirements. If you elect to borrow the down payment it is important you notify your lender and HEDCO. For additional information contact HEDCO.
How long does it take to obtain approval for a 504 loan?
Generally, completed financing packets received by HEDCO LDC during the first week of the month can obtain a decision from the HEDCO LDC board and SBA by the end of the month. The timeline may differ based on the complexity of the financing request.
How is the rate determined and can it be locked in advance?
The 504 loan rates are set monthly. The rate is determined at the time of closing, and cannot be locked in advance.
How are the loans funded?
The 504 Loan Program is funded via a debenture (bonds) that are sold on the open market by a designated Agent of the Program. The program is not subsidized by federal appropriations or tax dollars.