What is a SBA 504 Certified Development Company (CDC) Loan?

The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.

What are the Advantages of the 504 Loan?

Long-term below market fixed rate financing Equity requirement of 10% or more for customer Bank can participate in larger transactions Bank enjoys first lien, lending 50% of value at market rate and fees.

Who is Eligible?
To be eligible for a 504 loan, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 program, the business qualifies as small if it does not have a tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

How does it work?
A 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the small business being helped.

• Maximum SBA debenture is $1,500,000 for meeting the job creation criteria or a community development goal
• A business must create or retain one job for every $50,000 provided by the SBBA
• Maximum SBA debenture is $2.0 million for meeting a public policy goal and up to $4 million for a manufacturer
• Maturities of 10 and 20 years are available
• Fees total approximately three (3) percent of the debenture and may be financed with the loan
  

How can the funds be used?

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt or refinancing.
                                                                                       
What is the Interest Rate

Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. 

What are the options for financing my business?

There are different programs to address different needs. Large loans for fixed assets are usually financed through the 504 Loan Program, utilizing a fixed rate, long term, and low equity requirements. The 504 has larger eligibility limits and size standards to accommodate the cost of real estate, buildings, construction, and/or major equipment purchases. Working capital or short term assets are better served by one of the market rate SBA programs based on the size of the loan (7a, Low-doc, Community Express, etc.)  

How much do I need to put down to qualify for a 504 Loan?

Existing businesses usually require 10% equity based on the total project expense. New businesses will need an additional 5% and special purpose building will require an additional 5% equity. Capital Solutions will calculate the amount necessary for your specific circumstances. Conventional lenders typically will require 20% to 50% without third party risk mitigation. We will also require sufficient working capital to be available for your project.

Are there fees associated with SBA 504 Loans?

All fees on SBA 504 loans are statutory and can be included in the loan. A more detailed description of fees for each program can be found on this website. If you would like a quote for your loan just contact CapitalSolutions@charter.net.

How long does the 504 loan process take?

The length of the process will depend upon you. If your information is complete and your lender is ready, it takes about three days to clear the Capital Solutions credit process and typically another three to five business days at SBA. Complex projects that require special structuring or multiple lenders may take longer.

Can you help me find a lender?

Capital Solutions can work with any bank of your choosing.  If you don’t have a relationship with an institution, they will help you find the right one for your project.

Do I need a business plan to apply for a loan?

A formal business plan is not required, but it is helpful. Capital Solutions has a checklist of the necessary documents for the basis of a plan. No business decision should be made until all the aspects of your action have been explored from a best, worst, and most probably scenario. To get a copy of the checklist contact CapitalSolutions@charter.net.  

Who do I need to contact to get the process started?

You can contact the professionals at CapitalSolutions@charter.net who will be happy to discuss in detail any questions you may have regarding your 504 loan and will make the loan process as painless as possible. They look forward to working with you on 504 financing opportunities throughout the entire State of Alabama.