If you are a lender with a hard-to-fund project for a client who both needs and deserves a good finance package, TxCDC can be your secret weapon. We can help you do a great job of serving your client and meeting your institution’s funding requirements through the SBA 504 loan program. This information will help you understand more about SBA 504 loans and how they benefit the banker and borrower.
What is an SBA 504 Loan?
A Small Business Administration loan can be used to purchase owner-occupied commercial real estate or fixed assets. The funds can be used to remodel, expand or acquire property as well as purchase equipment. Your bank can finance up to 50% of the cost and the U.S. SBA will finance up to 40% of the cost, leaving as little as 10% to be covered by the borrower. SBA 504 loans are only available through a Certified Development Company like TxCDC.
Which businesses are eligible?
- For-profit businesses located in the U.S.
- Businesses with less than $15 million tangible net worth and less than $5 million profit after taxes including affiliates.
- Businesses that occupy at least 51% of their existing property or
- initially occupy 60% of a newly constructed property.
How can the funds be used?
- FOR BUSINESSES TO OWN THEIR FACILITIES AND EQUIPMENT: for expanding, setting up a new location or purchasing a building they have been renting.
- FOR SOFT COSTS: such as architect and engineering fees, interim interest, environmental studies, appraisals, loan closing fee and other fees.
- FOR DEBT REFINANCE: when included in expansion projects (debt refinance cannot exceed 50% of the new expansion cost).
- PROCEEDS CANNOT BE USED FOR THE FOLLOWING: general working capital, inventory, goodwill from business acquisition, franchise fees, tenant improvements, accounts receivables and vehicles.
What are the benefits for your bank?
- LOWERS CREDIT RISK: using SBA 504 loans provides a bank with a first lien position at a 50% or better loan-to-value ratio.
- MANAGES OVERALL LENDING LIMITS & INDUSTRY EXPOSURE: small banks can finance larger projects, and large banks can reduce their exposure in certain industries. Regulatory concerns will be reduced on your bank’s balance sheet.
- ALLOWS YOU TO ASSIST MORE CUSTOMERS:leverage lending capacities across more borrowers to stabilize and grow more businesses.
- GAIN NEW CUSTOMERS:win new customer’s business and gain their trust that you will provide them the best solutions with the 504 loan’s low fixed rate.
- STRENGTHENS CORE EARNINGS: pricing of the bank’s loan is at the bank’s discretion. More of the customer’s funds remain on deposit because of 90% financing. Fees and interest are earned on the interim loan.
- COMMUNITY REINVESTMENT ACT (CRA) CREDIT: SBA 504 loans count toward your bank’s activity.
What are the benefits for the borrower?
- LOW DOWN PAYMENT AND ENHANCED CASH FLOW: SBA 504 loans can offer an affordable down payment with financing of up to 90% of the project’s cost.
- LONG-TERM FINANCING AT COMPETITIVE FIXED INTEREST RATES: SBA 504 loans offer 20-year, fully amortized financing with lower monthly fixed payments.
- CUSTOMIZED OWNERSHIP OPTIONS: the borrowers can hold the title to a building personally or even set up a holding company for the real estate. They have the flexibility to maximize tax benefits and minimize liability.
How does it work?
The first step is to determine if the borrower meets the minimum standard qualifications by using our interactive pre-qualification form. You can also contact us and we’ll be happy to walk you through the process. If qualified, we will work with both the bank and borrower to identify the best option. Click here for more about how the entire process works.
Are you ready to help your client’s future business plans a reality? Call us at 800-486-8620 or contact a staff member loan consultant today:
January 2, 2012
SMALL BUSINESS ADMINISTRATION
The Small Business Administration publishes an interest rate called the optional ‘‘peg’’ rate (13 CFR 120.214) on a quarterly basis. This rate is a weighted average cost of money to the government for maturities similar to the average SBA direct loan. This rate may be used as a base rate for guaranteed fluctuating interest rate SBA loans. This rate will be 2.250 (21⁄4) percent for the January—March quarter of FY 2013.
Pursuant to 13 CFR 120.921(b), the maximum legal interest rate for any third party lender’s commercial loan which funds any portion of the cost of a 504 project (see 13 CFR 120.801) shall be 6% over the New York Prime rate or, if that exceeds the maximum interest rate permitted by the constitution or laws of a given State, the maximum interest rate will be the rate permitted by the constitution or laws of the given State.
Grady B. Hedgespeth,
Director, Office of Financial Assistance.
[FR Doc. 2012–31295 Filed 12–27–12; 8:45 am]
BILLING CODE P