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The purpose of the SBA 504 program is to create or retain permanent jobs by providing fixed-asset financing to healthy small businesses. This program provides three major benefits to small businesses to achieve economic growth. These benefits are:

• Reasonable fixed-interest rate
• Long repayment term
• Low down payment

About The SBA504 Program

Use of Proceeds:

• Acquisition of land (actual cost)
•Improvements including grading, street improvements, parking lots and utilities
•Landscaping, signage
•Construction or acquisition of a building (appraised value)
•Purchase of machinery and equipment
•Contingency amount of up to 10% of construction costs
•Professional fees such as surveying, appraising, accounting, engineering, architectural, and legal costs
•Construction interest, provided the contingency amount approved is adequate
•Debt Refinance with an expansion component (not to exceed 50% of total project)

The 504 Loan may not be used for working capital, debt consolidation or repayment, or venture capital. However, the SGRC can companion the 504 with an SBA 7(a) Loan which may be used for any legitimate business purpose. To ensure eligibility of all project costs, construction should not begin until the SBA application process has been started.

Loan Amount

The borrower must contribute at least 10% of the project cost either in cash or equity in project-related land. (15% required for start-ups or special purpose buildings)The SGRC/SBA provides a maximum of 40% of the project cost or $5,000,000 (5.5MM maximum for manufacturers); whichever is less in second lien position. A private lender provides the balance on a first mortgage basis. Minimum SBA portion of the loan is $50,000.

Type of Business

Eligible businesses include legal, for-profit enterprises with a net worth not exceeding $15M. Average net profit after taxes may not exceed $5 million for the last two years. Passive investment companies, not-for-profit companies, unregulated media firms, lending institutions, real estate investment companies, gambling establishments, and recreation facilities not open to the public can not qualify for the 504 loan.

The SBA504 Loan Program Procedure...

Approval and Interim Financing:

The loan application, prepared by the SGRC staff is submitted to the local loan board for approval and then to SBA for final approval. Upon approval, SBA issues an "Authorization and Debenture Guaranty". After the lender and small business have accepted the terms and conditions of the Debenture, an interim loan is made from the participating lender to fund the construction or acquisition of fixed assets on an interim basis.

Closing, Funding, and Servicing

The permanent loan closing of the debenture portion of the project is scheduled after the SGRC has verified and certified the project costs and borrower injection. The sale of the debenture takes place approximately one month after the SBA closing. The interest rate is set at the time of the sale and funds are wired to the participating lender to reduce the bank's interim loan to their agreed permanent portion.Servicing is the SGRC's responsibility on the debenture (SBA) portion of the loan.

The SBA504 Loan Program Features...

Interest Rate:

Interest charged on the 504 portion of the loan is determined by the current rate on 10-year treasury issues plus .85%.
Private lenders charge a going rate (fixed or variable) for their portion of the loan. Maturities are tied to the 504 portion of the loan and must be at least seven years.


Fixed for 10 or 20 years.


The SGRC prepares all paperwork for the borrower. The bank is required to provide only a commitment letter and an environmental questionnaire.

SBA504 Loan Program Requirements...

Cash Flow:

SBA is a "cash flow" lender. The business concern's adjusted cash flow must be adequate to service the entire debt.

Job Standard:

The 504 Loan also requires that one new job be created for every $65,000 provided by the SBA. This ratio may be altered for certain projects at the discretion of the SGRC.

Late Fees and Prepayment Penalty:

Loan payments received after the 15th of the month are subject to a late fee. The outstanding balance of the 504 debenture may be paid prior to the maturity date but no partial payments may be made. Any prepayment during the first half of the maturity must be accompanied by a prepayment fee. There is no prepayment fee if the debenture is prepaid during the latter half of the maturity.