Uses
Proceeds may be used for the acquisition, expansion or renovation of owner-occupied commercial real estate. Project costs may also include interest on interim financing and professional fees related to the project.
Borrower and Project Eligibility
To be eligible, the business generally must be operated for profit and have a tangible net worth of less than $7 million and an average net income of less than $2.5 million, after taxes for the preceding two years. The project must have a positive economic impact, generally evidenced by one job created by every $50,000 of SBA 504 debenture amount. Loans that meet a public policy goal do not have to meet the job creation requirement.
Structure
The SBA 504 loan is typically structured as follows:
Borrower Equity Injection
A minimum of 10% equity is required. If the small business concern has been in business less than 2 years or if the project is for a special-use facility, the minimum injection is 15%. Should both of these apply then the equity injection is increased to 20% of the project.
Loan Amount
The SBA 504 portion of the loan generally does not exceed $1.5 million; however, the loan amount can be as high as $2 million should the loan qualify under a public policy goal. In combination with the first mortgage loan, projects up to $6 million can be financed under the program.
Terms and Interest Rates
Collateral
Generally, the project assets being financed are used as collateral. Personal guarantees are required from all 20% or more principal owners of the business. Additional collateral may be required.
Benefits to the Borrower
Business Capital Group originates SBA 504 Loans through the U.S.Small Business Administration and its Lending Partners.