| The SBA 504 Loan Program enables 90% | | | | environmental studies, appraisals, and interest and |
| financing of the total project costs to preserve | | | | fees on the construction and/or interim bank loan |
| more capital for an appreciable asset while | | | | can also be rolled into the note. The 504 Program |
| lowering current real estate expenses up to 40% | | | | cannot be used for working capital or inventory, |
| instead of leasing, and up to 25-year fully | | | | consolidating or repaying debt, or refinancing |
| amortizing terms to lessen the impact on cash | | | | existing debt. |
| flow while obtaining below-market, long-term fixed | | | | You will realize upfront cash savings of |
| interest rates. Maturities of 10 and 20 years are | | | | approximately $100,000 on a $1,000,000 project. |
| also available. A great bonus: it allows the financing | | | | Interest rates on 504 loans are tailored to an |
| of closing costs and other normally out-of-pocket | | | | increment above the current market rate for |
| fees to be financed as part of the loan amount. | | | | five-year and 10-year U.S. Treasury issues. The |
| Better yet, on top of all of this is a fantastic | | | | rate on the 504 loan is fixed for the life of the |
| boon: the loan is assumable! | | | | loan and is set when the CDC sells the bond to |
| You get long-term, fixed-rate financing for real | | | | fund the loan. 504 bonds are amortized securities. |
| estate and/or equipment purchases through | | | | Fees total approximately 3% of the debenture |
| SBA-licensed Certified Development Companies | | | | and may be financed with the loan. Currently, |
| (CDCs). The proceeds from 504 loans must be | | | | these fees are waived, although it may only be |
| used for purchasing fixed assets like land and | | | | until the end of December or whenever the |
| improvements, including existing buildings, grading, | | | | Stimulus funds for the program run out. |
| street improvements, utilities, parking lots and | | | | Whichever comes first. |
| landscaping; construction of new facilities, or | | | | So, a low down payment of just 10%, which |
| modernizing, renovating or converting existing | | | | allows the business to preserve cash for working |
| facilities; or purchasing long-term machinery and | | | | capital; fixed rate on the SBA 504 portion, |
| equipment with a useful life of at least 10 years. | | | | whereupon you don't have to worry about the |
| The loan is secured with a senior lien from a | | | | prime lending rate rising; long term, therefore |
| private-sector lender covering up to 50% of the | | | | lower monthly payments; and low blended interest |
| project cost, a fixed rate loan secured with a | | | | rate, the rate between the bank portion and the |
| junior lien from the CDC (backed by a 100% | | | | SBA's 504 portion, illustrates the best way to |
| SBA-guaranteed debenture) covering up to 40% | | | | purchase commercial real estate if you are a small |
| of the cost, and at least 10% equity from the | | | | business. And remember: SBA 504 financing is |
| small business. | | | | available to purchase commercial real estate |
| Soft costs like architectural and legal fees, | | | | andcapital equipment. |