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The SBA 504 Loan Program

The SBA 504 Loan Program. Seedco South Eastern Development Company of Pennsylvania. 25 year old Certified Development Company (CDC) – SBA 504 Loan Program Statewide Work with borrowers throughout the Commonwealth Partner with many Economic Development agencies to offer the SBA 504.

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The SBA 504 Loan Program

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  1. The SBA 504 Loan Program

  2. SeedcoSouth Eastern Development Company of Pennsylvania • 25 year old Certified Development Company (CDC) – SBA 504 Loan Program Statewide • Work with borrowers throughout the Commonwealth • Partner with many Economic Development agencies to offer the SBA 504

  3. Typical 504 Financing Structure • 50/40/10 90% Financing: • 50% Private sector loan • 40% 504 loan • 10% Equity (*Start-up/Special Use*) • Bank is in first lien position with a 50% LTV • 40% loan portion is a below market, 20 year fixed rate • Equity injection of 10% preserves working capital

  4. 504 Benefits • Lender Benefits • Blended interest rate offered to borrower • More competitive / creative financing • 50% loan to value • CRA credits • No SBA documentation or reporting • Borrower Benefits • 90% + financing • 20 year fixed rate • Below market fixed rates (SBA portion) • Working capital preservation

  5. Eligible 504 Project Costs • Land and building acquisitions • New construction • Building renovations/ leasehold improvements • Major machinery and equipment with a minimum 10 year economic life • Related costs, which can include: • Acquisition-related legal expenses • Bridge loan points and interest • Construction contingency, up to 10% • Professional fees • Eligible soft costs Typically incurred within 9 months of application submission

  6. 504 Project Structure

  7. Common 504 Loans • 51% Owner Occupied Commercial/industrial buildings • Hotels/motels • Assisted living, personal care and nursing home facilities • Day care and child care facilities • Automobile and motorcycle dealerships • Gas Stations/convenience stores • Fitness centers • Restaurants • Agricultural Expansions (dairy, poultry, hog)

  8. 504 Lending Limits • UP TO 40% of eligible 504 project costs: • $1,500,000 maximum • $2,000,000 maximum for projects satisfying a public policy goal • $4,000,000 maximum for manufacturing • Creating (or retaining) job opportunities • $50,000 per Job • $100,000 for Manufacturing

  9. SOP Update – 08/01/2008 Revision • Appraisal • Included on the initial engagement • Environmental • Records search with risk assessment vs. Phase I • Reliance letter • Change of ownership/Special use • Borrowed equity injection • Franchise Agreement

  10. Stimulus – 02/17/2009 Update • Job Requirement • Increase from $50,000 to $65,000 • Third Party Lender Fee • 0.5% eliminated for 2009 • CDC Fee • 1.5% CDC fee eliminated for 2009

  11. 504 Rates & Fees • March Funding • 5.6% Fixed for 20 years • Third Party Lender Fee • 0.5% eliminated for 2009 • CDC Fee • 1.5% CDC fee eliminated for 2009 • Underwriters Fee – 0.25% • Funding Fee – 0.4%

  12. Bottlenecks • Borrower’s Team Contacts • – Attorney, CPA, Insurance, etc. • Title Insurance • Life Insurance / Assignment • Organizational Documents • Construction / Sub-Contractors • Lien Waivers • Personal History (Form 912) • Franchise agreement / Other contracts • Communication - Try to address any special circumstance at the initial review of the project

  13. The SBA 7a Loan Program and Facilitation Services

  14. The SBA 7a Loan Program • Utilized to assist in starting, building and growing small businesses • Often utilized in situations such as start-up, projection-based, change of ownership, limited collateral, lack of equity injection; etc • Up to 90% financing • Weighted average term • Maximum funding up to $2MM • Must be owner occupied • Limited use for debt refinance

  15. SBA 7a Use of Proceeds • Purchase, construct, renovate or improve buildings • Business acquisition or expansion, including franchises • Machinery and Equipment • Leasehold improvements • Working capital

  16. SBA 7a Stimulus Changes • 90% Guarantee to a maximum of $1,500,000. • Elimination of Guarantee Fee 2-3.75% • $15,000,000,000 injected to stimulate secondary market. • Premiums banks received have increased.

  17. SEEDCO SBA 7a Loan & USDA Facilitation Services • Origination Process • Sales and marketing training consistent with your existing delivery system • SBA Approval Process • Supplement your existing underwriting process/document with SBA required components • Loan Closing • Loan Servicing • Loan Management & Administration • Work together to develop and assist management and monitoring practices • Secondary Market Sales • Liquidation • Explain process and act in and advisory capacity to assist in the submission to the SBA

  18. Questions

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