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 SheetsFriday, September 20, 2013
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:
Program Benefits:
What Qualifies:
504 Highlights:
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.
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.
Thursday, September 12, 2013
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:
Growth Corp's 504 Loan Program can be used to finance a range of agribusiness projects, such as:
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
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
Subscribe to:
Posts (Atom)