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.
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.
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