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.

What's the Difference Between a 504 Loan and a 7(a) Loan?

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)...

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:

• 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.

Resources

Determine an estimated monthly payment

 

Rate History

 

Compare the 504 and 7(a)

 

Print or email application forms

 

How the closing process works

 

Determine project eligibility

 

Download 504 Fact Sheets

 

Frequently asked questions

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.

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? 

504 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 $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

Small to Mid-Size Manufacturers

Many small to mid-size manufacturers find the 20% down payment often required in a conventional loan takes too much of their working capital.  There is another way!  The 504 Loan Program is designed to help manufacturers acquire fixed assets such as commercial real estate or heavy machinery and/or equipment without high cash outlay requirements often associated with conventional financing programs.

Loan Structure:
There are three players with the 504 - a bank or credit union, Growth Corp and the borrower.  In most cases, the structure is:

• 50% - Conventional Loan
• 40% - Growth Corp's 504 Loan
• 10% - Borrower Equity

Program Benefits:

• Up to 90% financing at fixed rates with long amortization terms (20 years for real estate and 10 years for equipment)
• Loan amounts up to $5.5 million for manufacturing and green initiative projects (SBA amounts only - NO LIMIT on overall project size)
• Debt refinancing for existing debt (must be 504 eligible assets) when there is a new fixed asset financing request

What Qualifies:

• Manufacturers with a tangible net worth of not more than $15 million and a two-year average net income (after taxes) of not more than $5 million
• Must meet the definition of a small to mid-size manufacturer as classified in sector 31, 32 or 33 of the NAICS
• Fewer than 500 employees
• Must be for-profit and have all of its production facilities located in the U.S.
• Must meet occupancy guidelines (at least 51%)

504 Highlights:

• Fixed interest rates - no balloons
• Up to 90% commercial financing
• Amortization terms up to 20 years
• Can be used for real estate purchase, construction, expansion, renovation, machinery & equipment, furniture & fixtures (10%), professional fees, interim interest, appraisal & environmental and debt refinance in some cases
• Fees and other up-front costs can be financed in the loan
• Loans up to $5.5 million for manufacturing and green initiative projects (SBA amounts only - no limit on overall project size)

Why Growth Corp:
Growth Corp is a not-for-profit organization authorized by SBA to marshal the 504 Loan Program.  Growth Corp focuses exclusively on economic development and job creation and is the largest 504 lender in Illinois, currently servicing a portfolio of over $670 million.  We have experienced loan officers across the state that would be happy to assist you with your 504 project.

SBA 504 Agribusiness Loans

How the 504 Helps Agribusiness...

Agribusiness owners looking to expand often find the down-payment requirements of conventional financing dips too far into their working capital.  The 504 provides a financing solution.  Check out these benefits of using the 504:

• Low down payment (15% in most cases) - helps conserve valuable working capital
• Low, fixed interest rate on 504 - avoids future rate fluctuations
• Long loan term - brings debt service in line with cash flow generated by the business
• Loans are advanced based upon project costs and not appraised value
• Keeps other assets from becoming encumbered
• Option to refinance debt related to fixed assets when combined with a new expansion project

Growth Corp's 504 Loan Program can be used to finance a range of agribusiness projects, such as:

•  Grain Elevators
• Irrigation Equipment
• Warehousing and processing facilities
• Operations and fertilizer plants
• Livestock feed lots
• Dairy farm start-up and expansion
• Livestock sales arenas
• Hog farrow-to-finish facilities

Essentially, the 504 is used by agribusiness owners to finance real estate and/or equipment for specific value-added uses.

Read more and download a free white paper at http://www.growthcorp.com/Portals/0/AgLoanInfo.pdf

Our Typical 504 Customer...

• Industrial companies that may have capacity or efficiency limitations or need to install new equipment at their current facility.  Examples include:
• Commercial Printers
• Machine Shops
• Freight & Transport
• Wholesalers
• Food Distributors
• Manufacturers
• Office buildings and condos that may need a substantial build-out and/or furnishings such as:
• Doctors & Dentists
• Chiropractors
• Physical Therapists
• Accountants
• Lawyers
• Architects
• Graphic Designers
• Retail companies such as:
• Restaurants
• Motels
• Car Washes
• Farmer's Markets
• Boutiques
• Auto Repair Shops
• Gas Stations & Convenience Stores

Certainty is a Great Thing

Given the recent increases in interest rates, what would it mean for your business if you locked in a low, fixed interest rate now?  The 504 Loan Program is one of the best financing solutions for business owners in these uncertain times.  Here's why:

Low, Fixed Interest Rates
With the 504, borrowers take advantage of a low interest rate, which is fixed for twenty years (or ten years for equipment).  In addition, borrowers typically receive a 90% advance, which preserves their working capital for the day-to-day operation of their business.

Predictable Monthly Payments
Borrowers lock in a low fixed interest rate, which gives them predictable payments and allows them to easily forecast for future years.  In a nutshell, borrowers are not affected by inflationary pressures and interest rate increases.

Protection from Balloon Payments
With the 504, borrowers do not have to concern themselves with saving the large amount of cash necessary for a balloon payment.  And, no balloon payment also means there is no need to refinance in three to five years.  This eliminates the need for another appraisal and the worry about a possible deterioration in property values.

Allows Borrowers to Make Improvements on their Property
Property improvements can be included with 504 financing, allowing borrowers to preserve their working capital.

The Program Can Be Used Multiple Times
With high loan limits (up to $5.5 million for the SBA 504 portion alone), borrowers can use the 504 multiple times as long as the total 504 portion stays below the maximum lending limits.  This is a great feature for borrowers buying a building and equipment, or a retailer opening multiple stores.

Don't gamble with the future...plan ahead with the 504.

Wondering what your estimated monthly payment would be with a 504 loan?

Use our calculator to determine your estimated monthly payment through Growth Corp. Just click this link to go to the calculator: http://growthcorp.com/Resources/LoanCalculator.aspx

How to Identify Potential 504 Candidates

As a commercial lender, you know that a conventional loan is not always the answer to your business client’s expansion needs. As an alternative, Growth Corp offers a financing solution through the U.S. Small Business Administration’s (SBA) 504 Loan Program. The 504 Loan Program offers fixed rates for capital expenditures and can finance up to forty percent of a project’s fixed assets (up to a maximum of $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.

504 ADVANTAGES FOR BORROWERS

• Low Down Payment – Conserves valuable working capital
• Below Market Fixed Rate – avoids future rate fluctuations
• Long Loan Term

504 ADVANTAGES FOR COMMERCIAL LENDERS

• Reduced Risk with 50% LTV Ratio
• Fixed or Variable Rate Option on Bank Loan
• Expanded Customer Base
• Meets Economic Development and Community

Growth Corp can help businesses become more competitive in the marketplace by financing economic growth through investments. To fund the 504 portion of the loan, Growth Corp issues debentures that are fully guaranteed by SBA and sold in the private bond market. Growth Corp works with you and the borrower to make the application process as easy as possible. If your client meets the prequalification requirements, the staff at Growth Corp will prepare all the necessary paperwork to be submitted to SBA for application approval.
To find out more about the 504 Loan Program, or for more specific project questions, please contact our office at any time: 877-BEST-504