Procedural Changes for 2014

SBA released a new SOP, 50 10 5 (F), for 2014 with many of the modifications affecting the administrative and procedural components of the 504.  Participating lenders and borrowers probably won't even notice most of the changes as they primarily involve the interaction between CDC's and SBA.  There are, however, a few changes you might want to keep in mind when thinking 504:

• Insurance:  Insurance coverage on the assets financed with 504 has been required by SBA for years.  However, the new SOP adds a layer:  if the state requirements are more than SBA requirements, or the state requires a business to carry specific insurance, then that business must prove it has the state required insurance.

• Guarantors:  The 20% or more rule still applies.  However, the 504 must have at least one guarantor, even if there are no 20% or more owners.

• Religion:  Businesses promoting religion are ineligible, but there are some businesses that may now be eligible.  SBA has developed a checklist to help determine if the project that involves religion would be eligible.  (Form 1971)

• Businesses Engaged in Lending:  Businesses with the primary purpose of lending are not eligible for 504.  However, SBA has added the following exception to this rule:  Financial Advisors.  To be eligible, the Financial Advisors' services must be fee-based and funds cannot be invested in their own portfolio of investments.

• Multiple 504's:  The 504 portion of most projects cannot exceed $5 million, but there are certain circumstances where this can be exceeded (mostly manufacturing).  Should a business meet the eligibility requirements for multiple 504s in excess of $5 million, SBA will determine if multiple loans in excess of $5 million to a borrower meets their prudent lending standards.

Remember, should you have any questions or need personalized lender training, contact us.  We are happy to come on-site and respond to your questions or conduct a training seminar with your commercial lending team.  http://www.growthcorp.com/ContactUs.aspx

Lenders, Let's Kick off 2014

We can’t start a new year without first thanking you, our Lending Partners.  We could not have had the year we had without your unwavering support and commitment to the 504 Loan Program.  For all your hard work and loyalty, we thank you!

Before we kick off 2014, let’s take a look at where we stand.  The past year was challenging because lending slowed fresh off the heels of the Temporary 504 Debt Refinance program.  However, because of those circumstances, we took a good look at ways we could improve, put a focus back on the basics and are standing strong ready to serve you in 2014.  Growth Corp is more motivated than ever to build local communities one business and one job at a time through administration of the 504 Loan Program.  We continue to be the largest 504 Lender in Illinois and one of the top ten CDC’s in the nation.  Our portfolio also continues to grow…a feat we are quite proud of.
 

So, let’s kick off this New Year…
 

First, a quick reminder of the benefits the 504 provides to lenders.  You already know the 504 reduces your risk with a lower loan-to-value ratio and first lien position on the project property.  But, don’t forget…the 504 allows lenders to set the terms for the bank portion of the loan and fulfills CRA goals.  In addition, Growth Corp takes care of all the paperwork and has accreditation with SBA to get loans processed quicker. 
 

Second, why not expand your lending services to your current borrowers or market new services to potential borrowers?  Offer the option to refinance qualifying debt with a new expansion project.  Or, let borrowers know they can qualify for higher 504 loan amounts if their construction or remodel includes going “green”.  And, what about reminding borrowers they can use the 504 multiple times.  So, if someone recently purchased real estate with the 504, why not reach out and see if they have a new equipment purchase in mind or a remodeling goal?
 

Finally, we are always striving to improve our service to you.  Therefore, we welcome your feedback.  Maybe you would like more on-site training.  Perhaps you have ideas for our website or need a specific leave-behind for your clients.  Let us know.  We want to hear any ideas you have that would improve your 504 experience with us.  You can respond to your loan officer directly or contact us any time at 877-BEST 504.

 

 

Together, let’s make the most of the 504 Loan Program and use it to foster growth in 2014.  Lenders, we look forward to partnering with you this year!

Alternative Financing Helped Busy Optometry Practice Expand

Best Vision, Des Plaines, Illinois

When Dr. Shelley Kim, owner of Best Vision in Des Plaines, Illinois, was ready to expand her optometry practice to a new location, her lender informed her of the 504 Loan Program as an alternative form of financing.  "While I did have the necessary funds to purchase and improve a property using conventional financing, the 10% down payment and 20 year low fixed rate on 40% of the loan were very attractive", Dr. Kim stated.  "Furthermore, I anticipated that I may need some cash reserves after moving to a new location, so the 10% down payment really helped alleviate cash flow concerns if they were to arise."

Growth Corp teamed up with Village Bank & Trust to make this expansion possible. 

 

Click here to read more 504 Success Stories.

Q & A

• We have a borrower who already started construction...is it too late to use the 504?

Not necessarily.  The 504 can take out 30-40% of a project that is currently in its interim construction phase, slashing the risk for your bank.  Since our closings can't happen prior to all construction being completed, it gives us the opportunity to still come into a construction project after it has started...and possibly even after its completed...as long as it is still financed with a construction/interest only loan.

• Can soft costs be rolled into the 504?

Yes.  The 504 enables borrowers to include renovations, closing costs, and other soft costs along with furniture, fixtures and equipment in the financing package.  And, expenditures within 9 months of the date of the application, including land and buildings, and/or equipment, can be included in the project costs and be reimbursed by the interim lender net of the borrowers equity injection.  Costs incurred prior to that day may be included solely at the SBA's discretion.

• What are the occupancy requirements?

For an existing building, a small business must occupy 51% and may lease up to 49%.  However, for a newly constructed building, a small business must occupy 60%, may lease 20% long-term and lease 20% with the intention of using some of the 20% within three years and all within ten years.

 

For more Q & A, visit our website

Case Study: Industrial Purchase with Build Out

Uses:

• Building Purchase - $4,000,000
• Renovations/Equipment - $2,750,000
• Interest Reserve - $50,000
• Soft Costs - $50,000

Total Project - $6,850,000


Structure:

Bank Conventional Structure:

• Bank - 75% - $5,137,500
• Equity - 25% - %1,712,500

Total Cash Outlay = $1,712,500



504 Structure:

• Bank - 50% - $3,425,000
• Growth Corp - 40% - $2,740,000
• Equity - 10% - $685,000

Total Cash Outlay = $685,000


Total Outlay Savings Using the 504 = $1,027,500

 Remember...we work in conjunction with local banks, not in competition with them!

An Innovative Business Concept Landed This Company on the Discovery Channel

When Discovery Channel calls to ask if they can come to your place of business and film an episode of "How It's Made", you can be certain you have an innovative business concept!  That's exactly what happened to Jim Czerwinski, owner of Magnum Steel Works, Inc.  The company drew national attention when they expanded their cutting-edge metal fabrication and machine business in Mt. Vernon, Illinois.

Magnum Steel Works, Inc. - Mt. Vernon, IL

Czerwinski opened the business when he saw renewed development of coal mining in the local area and wanted to fulfill the need for a mining equipment facility that could repair and rebuild equipment locally. 


People's National Bank and Growth Corp teamed up to help Magnum Steel Works, Inc. acquire new equipment using the 504 Loan Program.  The financing helped create jobs and is a great example of the investment and job creation potential of the 504 Loan Program.

Read more about how Growth Corp helped Magnum Steel Works, Inc. with the financing using a 504 Loan Program.

504 Loans for Veterans

504 Loans for Military Veterans

U.S. Military Veterans are eligible for commercial financing with the SBA 504 Loan Program.

The 504 is a commercial real estate loan primarily designed for business expansion.  Veterans can use the 504 to:

• Purchase real estate to house their business
• Expand or remodel an existing facility
• Purchase equipment with a useful life of at least ten years
• Refinance an existing, qualifying commercial loan as part of a NEW business expansion project
• Perform GREEN or Renewable Energy improvements

Why is the 504 a good choice?

• It offers long-term, fixed-rate financing fully amortized for the life of the loan with no future balloons, re-qualifying or refinancing required.
• It allows a 10% down payment/equity in most cases whereas conventional loans may require 25%-30% down
• Closing costs and soft costs can be included in the financing

For more information about the 504 Loan Program, to determine an estimated monthly payment, or for application forms, go to www.GrowthCorp.com.