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The SBA 504 Loan Program

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The SBA 504 Loan Program A Win-Win for the bank and the small business! www.seedcorp.com Updated by SEED Corp. 07/2015 * What is the SBA 504 Loan Program? – PowerPoint PPT presentation

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Title: The SBA 504 Loan Program


1
The SBA 504Loan Program
A Win-Win for the bank and the small business!
www.seedcorp.com
Updated by SEED Corp. 07/2015
2
What is the SBA 504 Loan Program?
It is the Small Business Administrations economi
c development financing program
  • Loans are provided to expanding small
  • businesses to aid in job creation
  • SBA loans are guaranteed by the Federal
  • Government

3
Selling the 504 Option
  • If the answer to any of the following questions
    is yes, then give the customer an introduction to
    SBA 504.
  • Is working capital important to the success of
    the business?
  • Is a long term fixed rate important for cash
    flow?
  • Is a low down payment important?
  • Does the business want protection in the event of
    a devaluation of real estate?

4
Benefits to the Borrower
  • Financing for a fixed asset project with as
    little as a 10
  • injection.
  • Long-term, fixed rate fundsenhancing cash flow
    for
  • business.
  • SEEDs interest rate as of July 2015 is
  • - 4.97 on a 20-year debenture
  • - 3.91 on a 10-year debenture
  • Ability to include soft costs, equipment and
    furniture and
  • fixtures in a real estate projectenabling
    businesses to
  • minimize out of pocket expenses and preserve
    cash.
  • Lower down payment conserves working capital.

5
Benefits to the Bank
  • Banks maximum loan-to-value is typically 50,
    minimizing risk and improving liquidity.
  • Ability to provide 90 financing to a small
    business client.
  • Program allows reliance on financial projections
    for startups and businesses with inadequate
    historic cash flow.
  • The banks first mortgage can be sold in the
    secondary market for a premium.
  • The CDC is responsible for all of the paperwork!!

6
Other Considerations
  • There is a prepayment penalty for the first half
    of the term of the debenture.
  • The debenture is assumable by another borrower.
  • The fees on the 504 loan currently total 2.65
    however, they are financed with the 504 loan.
  • The SEED minimum project size is 300,000.
  • SEEDs 504 loans range from 120,000 to 5.0
    million for standard industries and up to 5.5
    million for manufacturers and energy efficient
    projects.
  • SEEDs other loan programs can be used in
    conjunction with 504 projects, or can replace the
    SBA 504 portion on small projects.

7
Structure of a Typical 1 Million Project
Loan of Entity Amount Project
Security Lender 500,000 50 1st
Mortgage SEED/SBA 400,000? 40 2nd
Mortgage Borrower 100,000 10 TOTAL
1,000,000 100 ? Total Debenture
411,000 (rounded up) (Up front fees include
2.65 on 400,000) Projects that involve a
new business and/or special purpose building will
require an additional 5-10 from the borrower.
8
Fees Charged by CDC

Financed as part of 504 loan 2.65 of net
debenture
  • CDC Processing Fee 1.50
  • SBA Guarantee Fee 0.50Paid to SBA- one
    time fee
  • Underwriting Fee 0.40
  • Covers expense of pooling underwriting 504
    debenture,
  • paid directly to Merrill Lynch
  • Funding Fee 0.25
  • Paid to Central Servicing Agent (Wells Fargo)
  • Total 2.65

9
Interest Rate
Note rate (as of 07/15
Sale) 2.929 Plus Fees
Annual Central Servicing Agent Fee 0.100
CDC Servicing Fee (SEED .875 SBA .125) ? 1.000
SBA Fee 0.938
Total Fees
2.038 SEEDs Interest Rate (As
of 07/15) 4.967
? SBA Required Servicing Fee This fee can go up
to 1.5. CDCs Servicing Fees vary and impact
the clients rate!

10
Legal Fees
Closing costs are financed into the gross
debenture paid to CDCs closing attorney
  • Legal Fee Maximum of 2,500
  • Other Eligible Closing Costs
  • Title Insurance
  • Recording fees
  • Flood Insurance
  • Filing fees and title searches
  • Surveys

11
Whats needed for SEED to approve a 504 request?
  • Purchase sales agreement for project property
    and cost parameters for construction/renovation
    projects.
  • Three years of tax returns and/or financial
    statements for the business.
  • Information on the borrowers existing debt.
  • Personal financial statement and two years of
    personal tax returns for each principal of the
    business (20 or more ownership).
  • Property appraisal and environmental assessment
    can be submitted to SEED after approval.
  • NO APPLICATION FORM IS REQUIRED!!!
  • WE USE ESSENTIALLY THE SAME UNDERWRITING
  • DOCUMENTATION AS THE BANK!!!

12
The 504 Process
  • Borrower or the bank submits a loan package to
    SEED.
  • The loan request is presented to SEEDs Loan
    Review
  • Committee (meeting or email).
  • A SEED commitment letter is sent to the
    borrower and bank.
  • Loan is packaged and forwarded to SBA for
    issuance of
  • the SBA Authorization (3 day turn around).
  • Bank closes on permanent loan and the bridge
    loan. SEED closes simultaneously on turnkey
    projects.
  • SEED/SBA payoff the banks bridge loan in 90
    days on
  • turnkey projects or after the project is
    completed
  • (construction renovation projects).

13
Use of Funds
  • Fixed-Asset Acquisition or Expansion
    Including
  • Purchase land construction of new buildings
  • Purchase and/or renovate existing buildings
  • Acquire/Install machinery equipment
  • Refinance existing fixed asset debt up to 50
    of new SBA 504 Project
  • Soft costs related to the project (appraisal,
    environmental, interim interest, other)
  • Ineligible uses of funds
  • Purchase of trucks and autos
  • Working Capital
  • Franchise fees

14
Banks Permanent First Mortgage
  • Permanent financing must be for at least 10
    years
  • (on a 20-year debenture) with no balloon
    payments
  • during that time.
  • Interest rate on the banks mortgage is set by
    bank.
  • Bank can charge points.
  • One-time fee of 0.50 on the banks first
    mortgage is
  • charged by the SBA.

15
Occupancy Requirements
  • Existing Building
  • Business must occupy at least 51
    - may lease out up to 49
  • Newly Constructed Building
  • Business must initially occupy at least 60
    - must occupy up to 80 within 10 years
  • - can sublease 20 indefinitely


16
Job Requirements
Create/Retain one job for each 65,000 borrowed
through the 504 Program unless the project meets
a Public Policy Goal.
Public Policy Goals
  • Rural Development
  • Expansion of Minority, Women or Veteran-Owned
    Businesses (51 owned)
  • Expansion of Exports
  • Business District Revitalization
  • Enhanced Economic Competition
  • Restructuring Due to Federally Mandated Standards
    and/or Policies
  • Changes Necessitated by Federal Budget Cutbacks
  • Manufacturing businesses one job per 100,000
  • Energy-consumption reduction of at least 10 or
    sustainable design or equipment and process
    upgrades

17
Why YOU Should Consider a SEED/SBA 504 Loan
  • Up to 90 financing for project
  • Lower down payment for client improved liquidity
    for bank
  • SEED provides quick efficient turn around (SBA
    approved for the Abridged Submission Method)
  • Note is assumable by another borrower
  • SEED offers a low 504 rate provides loans up to
    200,000 at 5 fixed to assist with working
    capital or replace the down payment
  • SEED is responsible for all the paperwork No
    application form to fill out

www.seedcorp.com(508) 822-1020
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