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- Are only Banks allowed to participate as a Third Party Lender in an SBA 504 project?
- What are SBA's requirements regarding the Terms of Third Party Loans?
- What are the general rules to determine if a Project Financing Structure qualifies for an SBA 504 loan?
- Can existing equity in the Project Property be used as all or a portion of an Borrower's injection?
- Can pre-existing debt on the Project Property be refinanced with SBA 504 Project Loan Proceeds?
- What are SBA's Community Development Goals and Public Policy Goals?
- What are SBA's requirements for appraisals?
- Is an environmental report required when the purchase of real property is being financed with an SBA 504 loan?
Are only Banks allowed to participate in an SBA 504 project?
No. Savings and Loan Associations, Credit Unions, Pension funds, Insurance companies, Commercial lending companies, Taxable Industrial Revenue Bonds and Individuals may participate as a Lender.
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What are SBA's requirements regarding the Loan terms from the Participating Lenders?
- The Lender Loan must have a term of at least 7 years when the 504 loan is for a term of 10 years and at least 10 years when the 504 loan is for 20 years.
- Interest rates must be reasonable.
- The Lender Loan must not have any early call feature or contain any demand provisions unless the loan is in default.
- The Lender Loan must not be open-ended.
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What are the general rules to determine if a Project Financing Structure qualifies for an SBA 504 loan?
- The Lender financing must be equal to or greater than the debenture.
- The net debenture may not exceed 40% of the project's total cost.
- The borrower’s injection must be at least 10% of the total project cost, and may be more, as required by statute or for credit reasons.
- No more than 50% of the project costs can come either directly or indirectly from Federal sources.
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Can existing equity in the Project Property be used as all or a portion of an Borrower's injection?
Yes. The Borrower's injection may be existing equity in land (including buildings, structures and other site improvements that will be part of the Project Property) previously acquired by the Borrower.
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Can pre-existing debt on the Project Property be refinanced with SBA 504 Project Loan Proceeds?
Sometimes. When the Project Property is land and building, and it was acquired less than nine months before the application is received by SBA, the financing used to acquire the land and building could be considered "interim financing" and be eligible to be paid-off with 504 loan proceeds.
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What are SBA's Community Development Goals and Public Policy Goals?
Community Development Goals:
- Improving, diversifying or stabilizing the economy of the locality
- Stimulating other business development
- Bringing new income into the community
- Assisting manufacturing firms (Standard Industrial Classification Codes 20-49)
- Assisting business in Labor Surplus Areas as defined by the Department of Labor
- Business District Revitalization: A project located within a business area of a community with a recognized revitalization or redevelopment plan.
- Expansion of Exports: The business must derive a least 10% of its revenue from export sales at the time of the project or will be 10% of the business’s revenue as a result of the project.
- Expansion of Minority Business Development: Loans to Minority-owned firms. The ownership by the minority must be 51% or more.
- Rural Development: Projects located in rural counties or in a metropolitan area with a resident population of less than 20,000 and SBA has determined such area to be rural.
- Enhanced Economic Competition: A project that increases a business’ competitiveness through advancement of technology, plant retooling (expansion or modernization of manufacturing facilities), or conversion to robotics.
- Restructuring Because of Federally Mandated Standards or Policies: A project that enables the business to meet requirements to improve the environment, safety or health of employees, such as pollution control equipment, or removal/encapsulation of asbestos, or that assists a business that provides environmental services.
- Changes Necessitated by Federal Budget Cutbacks: A project in which a business is locating or expanding in an area impacted by Federal budget cutbacks, such as facility closing or cutbacks in defense-related industries.
- Expansion of Small Business Concerns Owned and Controlled by Veterans: Loans to Veteran-owned firms. The ownership by the Veteran must be 51% or more.
- Expansion of Small Business Concerns Owned and Controlled by Women: Loans to firms owned by women. The ownership by women must be 51% or more.
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What are SBA's requirements for appraisals?
Generally, SBA accepts the appraisals from the first mortgage lender.
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Is an environmental report required when the purchase of real property is being financed with an SBA 504 loan?
Yes, SBA loans typically require a transaction screen or Phase 1 environmental report. California Statewide works closely with the lender to ensure that the appropriate environmental reports are conducted for the project property.
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