About the SBA 504 loan
ADVANTAGES
The SBA 504 loan is a partnership between an SBA Certified Development Company (CDC) and a bank. The loan provides financing for the purchase, renovation, or construction of commercial real estate. Some advantages include:
- Up to 90% financing to preserve working capital
- Long-term amortization for low monthly payments
- Below-market 20-year fixed interest rate
- Fixed or adjustable rates available on the First Mortgage
- Purchasing commercial real estate with long-term, below-market fixed rates can be more cost effective than leasing
- Title to the building can be taken by the business, the principals individually, a holding company, or a trust
Sample structure
| Project Cost | Typical Structure | |||
| First Mortgage (Bank) | $6,250,000 | 50% | ||
| Second Mortgage (Capital Access Group) | $5,000,000 | 40% | ||
| Down Payment (Borrower) | $1,250,000 | 10% | ||
| Total | $12,500,000 |
Based on a typical 50-40-10 structure and a Total Project Cost of $12.5M.
Quick facts
| First Mortgage (Bank) |
Second Mortgage (Capital Access Group) |
Down Payment (Borrower) |
||||
| Typical Structure | 50% | 40% | 10% | |||
| Maximum Amounts | No maximum, up to 65% LTV | $5–5,500,0001 | 10%2 | |||
| Rate | Fixed or Adjustable | Below-Market 20-Year Fixed | ||||
| Term | 10 Year Minimum | 20 Years | ||||
| Amortization | 20-30 Years | Fully Amortized | ||||
| Prepayment | Penalty or No Penalty Available | No penalty after 10 years3 | ||||
| Fees | Points Vary (Approx. 1%) | 2.15% Financed into Loan |
1$5M for most projects, $5.5M for manufacturers or energy-saving facilities. 2New Business (less than two years old) OR Special-Purpose Building require 15% equity. New Business AND Special-Purpose Building requires 20%. 3 Penalty is a declining percentage of the balance for the first 10 years.
