The 504 Loan Program was specifically designed to finance commercial real estate and is often the best choice for borrowers purchasing fixed assets, such as the construction or purchase of a building or the purchase of long-term heavy machinery/equipment.
Go to our website for a full comparison of the 504 and 7(a)...
Growth Corp’s 504 Loan Program helps provide businesses with better access to money for expansion than would otherwise be available through conventional financing. The 504 Loan Program is available to most businesses for the purchase, construction, or expansion/renovation of buildings and/or the purchase of equipment. We hope our blog will be a helpful tool for gaining information on small business financing. If you need more help, please contact our office at 877-BEST-504.
Thursday, October 31, 2013
Monday, October 21, 2013
The Closing Process
So, your 504 loan application was just approved by SBA...what happens next?
As soon as a 504 loan has been approved, one of Growth Corp's Closing Specialists is assigned to the project and will thoroughly prepare all the paperwork necessary for closing. Keep in mind...borrowers will continue to work with their bank throughout the process, and the banker will assist the borrower in gathering the following documents necessary for closing:
Additional documents will also be needed to complete the closing book, but can be collected while awaiting closing or at closing.
The timing of funding will then depend on where we are in the current cycle, as we are always working 30-60 days out. Here's why...once our legal department gets all the closing documents prepared, closing attorneys will schedule a closing. Post-closing, the complete file is then turned over to SBA and the loan is pooled all the other 504 loans funded in the same month. The pool of loans is sold to investors in the form of debentures...typically on the first Tuesday of every month.
The borrower's interest rate will be determined from the sale of those debentures and is based on current market conditions. Go to our website to view a rate history chart. A borrower's monthly payment will include principal, interest and a loan servicing/guaranty fee.
Once the rate is established, the borrower will receive their amortization schedule and begin making payments to a Loan Servicing Agent (Wells Fargo). This organization handles the payment processing and loan accounting for all SBA 504 loans. Keep in mind...Growth Corp's Servicing Department will answer any questions regarding the loan, including bank account changes, payoffs, etc.
Growth Corp knows how important it is to get projects closed and funded in a timely manner...we will work diligently to ensure this happens.
As soon as a 504 loan has been approved, one of Growth Corp's Closing Specialists is assigned to the project and will thoroughly prepare all the paperwork necessary for closing. Keep in mind...borrowers will continue to work with their bank throughout the process, and the banker will assist the borrower in gathering the following documents necessary for closing:
- Appraisal
- Environmental
- Title Work
- The Bank's Note and Mortgage
- Organizational Docs
- Life Insurance Policies...these can be time consuming, so please plan ahead
Additional documents will also be needed to complete the closing book, but can be collected while awaiting closing or at closing.
The timing of funding will then depend on where we are in the current cycle, as we are always working 30-60 days out. Here's why...once our legal department gets all the closing documents prepared, closing attorneys will schedule a closing. Post-closing, the complete file is then turned over to SBA and the loan is pooled all the other 504 loans funded in the same month. The pool of loans is sold to investors in the form of debentures...typically on the first Tuesday of every month.
The borrower's interest rate will be determined from the sale of those debentures and is based on current market conditions. Go to our website to view a rate history chart. A borrower's monthly payment will include principal, interest and a loan servicing/guaranty fee.
Once the rate is established, the borrower will receive their amortization schedule and begin making payments to a Loan Servicing Agent (Wells Fargo). This organization handles the payment processing and loan accounting for all SBA 504 loans. Keep in mind...Growth Corp's Servicing Department will answer any questions regarding the loan, including bank account changes, payoffs, etc.
Growth Corp knows how important it is to get projects closed and funded in a timely manner...we will work diligently to ensure this happens.
Tuesday, October 15, 2013
Thursday, October 10, 2013
Structuring the Bank's Loan in a 504...One Loan or Two?
Assuming the borrower has already applied for a 504 Loan, the main factor to consider is whether the project is:
A. An acquisition with very little build-out requirements; or,
B. A construction project that will take 8-15 months (or more) to complete
Based on the purpose of the project, the SBA's preferences are:
If the project is a straight acquisition (very few build-out requirements), then SBA's preference is to do two loans. The reason being is because with two mortgages, the title work will clearly show the loan amount ahead of the SBA 504 portion and SBA can then easily determine that the amount they are sending to the bank at closing is enough to pay off the interim loan.
If the project involves renovations/construction requiring at least 8-15 months to complete, SBA's preference is to do one loan. The reason being is there are going to be different provisions. So, the amount of a construction loan should be the sum of the term loan and the interim loan. Then, at closing the bank should do one term loan for their portion and use the proceeds to pay down the construction loan. SBA can then look at the large construction loan, clearly see what the bank's term has paid down, and verify that the difference remaining matches the amount they are sending in 504 funds.
A. An acquisition with very little build-out requirements; or,
B. A construction project that will take 8-15 months (or more) to complete
Based on the purpose of the project, the SBA's preferences are:
If the project is a straight acquisition (very few build-out requirements), then SBA's preference is to do two loans. The reason being is because with two mortgages, the title work will clearly show the loan amount ahead of the SBA 504 portion and SBA can then easily determine that the amount they are sending to the bank at closing is enough to pay off the interim loan.
If the project involves renovations/construction requiring at least 8-15 months to complete, SBA's preference is to do one loan. The reason being is there are going to be different provisions. So, the amount of a construction loan should be the sum of the term loan and the interim loan. Then, at closing the bank should do one term loan for their portion and use the proceeds to pay down the construction loan. SBA can then look at the large construction loan, clearly see what the bank's term has paid down, and verify that the difference remaining matches the amount they are sending in 504 funds.
Wednesday, October 2, 2013
504 Facts
The last five years taught us a lot. The downturn in our economy led to both an increase in the number of struggling businesses and foreclosures and a decrease in property values. The market was tough to say the least.
Now, imagine if there was a way to loan with more certainty, stability and security. You can with the 504 Loan Program. The 504 Loan Program is fixed rate financing for capital expenditures and can finance up to forty percent of a project's fixed assets (the first mortgage loan has no max, the second mortgage 504 cannot exceed $5 million and, in some cases, %5.5 million). Healthy businesses may qualify for the 504 Loan Program if their expansion plans call for the purchase and use of real estate and/or equipment.
Using the 504, borrowers are certain of their interest rate on about 1/2 of their project, thereby eliminating the risk involved when a five year balloon comes due...and we all know there's no way of knowing where rates or property values will be in five years.
Lenders benefit too by being secure in the knowledge they've cut their risk in half. Given the benefits, why wouldn't you consider the 504 for every commercial real estate deal?
Uses:
Building Purchase $4,000,000
Renovations/Equipment $2,750,000
Interest Reserve $50,000
Soft Costs $50,000
Total $6,850,000
Bank Conventional Structure 504 Structure
Bank.......75%.....$5,137,500 Bank..................50%.....$3,425,000
Equity.....25%.....$1,712,500 Growth Corp.....40%.....$2,740,000
Est. 75% advance on cost Equity................10%.....$685,000
Total Cash Outlay Total Cash Outlay
$1,712,500 $685,000
Now, imagine if there was a way to loan with more certainty, stability and security. You can with the 504 Loan Program. The 504 Loan Program is fixed rate financing for capital expenditures and can finance up to forty percent of a project's fixed assets (the first mortgage loan has no max, the second mortgage 504 cannot exceed $5 million and, in some cases, %5.5 million). Healthy businesses may qualify for the 504 Loan Program if their expansion plans call for the purchase and use of real estate and/or equipment.
Using the 504, borrowers are certain of their interest rate on about 1/2 of their project, thereby eliminating the risk involved when a five year balloon comes due...and we all know there's no way of knowing where rates or property values will be in five years.
Lenders benefit too by being secure in the knowledge they've cut their risk in half. Given the benefits, why wouldn't you consider the 504 for every commercial real estate deal?
504 Case Study
Industrial Purchase with Build OutUses:
Building Purchase $4,000,000
Renovations/Equipment $2,750,000
Interest Reserve $50,000
Soft Costs $50,000
Total $6,850,000
Bank Conventional Structure 504 Structure
Bank.......75%.....$5,137,500 Bank..................50%.....$3,425,000
Equity.....25%.....$1,712,500 Growth Corp.....40%.....$2,740,000
Est. 75% advance on cost Equity................10%.....$685,000
Total Cash Outlay Total Cash Outlay
$1,712,500 $685,000
TOTAL CASH OUTLAY SAVINGS = $1,027,500
Download the 504 Fact Sheets
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