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ABC Corporation has been leasing a 16,000-square-foot building for five years. A 25,000-square-foot building on the same block has just gone on the market for $3,000,000. ABC’s owner, Bob Hoskins, wants to make an offer on the building, but he doesn’t know where he can get the 25% ($750,000) down payment that would be required with conventional financing. Ned Sanders, his long-time lender, has the solution: an SBA 504 loan! Here’s how it will work: The bank will finance a $1,500,000 first mortgage for 50% of the cost, and California Statewide will finance a $1,200,000 second mortgage SBA 504 for 40% of cost. The good news is that Mr. Hoskins’ down payment will only be $300,000, allowing him to conserve his working capital and expand his business.
| * | Loan amounts and down payment vary with project type and credit quality. 504 loan maximum is up to $2.0 million ($4 million for manufacturers), but projects up to $9 or $10 million make good 504 candidates. | ||||
| ** | Bank rates vary with lender. 504 rate is set at funding (approximately 90 days after escrow closing) at the 10-year U.S. Treasury note plus estimated 2.2-4.2%. 504 loan has a repayment ability. | ||||
| *** | Bank loan has minimum 10-year term and 15- to 30-year amortization. The 504 loan is a 20-year fully amortizing loan and payments are estimated. | ||||
| • | Both loans use the same appraisal and environmental Phase I. Lender provides bridge financing until the 504 debentures are sold. | ||||
| • | Loan fees for the Bank range from 1 to 1.5% of the loan. 504 fees are 0.65 of the loan, plus a $2,000 attorney closing fee which are financed with the loan. | ||||
| • | Small business must have a net worth of less than $7 million and profit-after-tax of less than $2.5 million. | ||||
| • | Small business must meet conventional credit underwriting criteria. | ||||
| • | California Statewide can pre-qualify customers within
48 hours. |
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