504 Loan Program: The SBA 504 loan program is designed to assist entrepreneurs in obtaining long-term financing for capital assets like the purchase of real estate and expensive equipment. Recognizing that small business owners sometimes have more difficulty getting traditional business financing but need funds to grow, the SBA 504 loan provides financing for entrepreneurs to make an investment in their own facilities while continuing to expand and create new jobs.
Affiliates: Affiliates are business concerns, organizations or individuals that control each other or that are controlled by a third party. Control may include the following: shared management or ownership; common use of facilities, equipment and employees; or family interest.
Amortization: Amortization is a payment plan that enables the borrower to reduce his debt gradually through monthly payments of principal.
Balance Sheet: A balance sheet provides detailed information about a company’s assets, liabilities and owner’s equity.
Business Plan: A business plan is a document that outlines a firm’s financial and operational goals (projections), benchmarks, specific actions to reach the goals and details of assumptions used to develop the plan.
Cash Flow Statements: Financial statements are documents that report a company’s inflow and outflow of cash.
CDC/504 Loan Program: This program provides long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization. It is designed for businesses that require “brick and mortar” financing, and is delivered by Certified Development Companies (CDCs), which are corporations set up to contribute to the economic development of their communities.
Debt to Equity Ratio: This ratio is a financial indicator expressed as debt divided by total equity.
Debenture: Debenture is a debt instrument used by the SBA to fund the 504 portion of the borrowing.
Eligible Assets: For debt refinance, eligible assets are commercial building or property or refinancing another property owned by the same business as part of an expansion. The debt being refinanced does not need to be for assets at the same location or for the same type of property as the project being financed as long as the operation at the other location has the same North American Industry Classification System (NAICS) code as the operation at the project location.
Guarantor: A guarantor is a party that signs an agreement and promises to fulfill the obligation of the loan if the maker of the loans does not.
Income Statements: An income statement is a financial report that shows how much revenue a company earned and expenses it incurred over a specific time period (usually for a year or some portion of a year).
Injection: An injection is the owner or firm’s resources, most often cash or land equity, that are used for investment in the acquisition of an asset. This is often referred to as a down payment.
Interest Rate (SBA 504): Also known as a debenture rate, this interest rate is fixed at the time of closing at a rate similar to Treasury securities of like term.
Interest Rate (Bank): Banks may charge a fixed or floating market rate for their conventional portion of the loan along with points and fees.
Liquidity: Liquidity is a measure of how fast a firm can convert its assets to cash. Total liquidity would be cash and assets that are easily converted to cash less liabilities that are due in the short term.
Loan-to-Value Ratio (LTV): This ratio is the relationship between the amount of the debt on the property (total loans secured by the property) and the value of the real property expressed as a %age. For example, a LTV of 90% means that the loans on your property are 90% of the property’s value.
Small Business Administration (SBA): The SBA is a government agency that helps maintain liquidity and provide access to loans in the business finance market.