Real Estate and Equipment Loans

The CDC/504 Loan Program provides financing for major fixed assets such as equipment or real estate.

CDC/504 Loan Program Eligibility

To be considered for a Certified Development Company(CDC)/504 loan, applicants must meet these eligibility requirements:

  • Operate as a for-profit company
  • Do business (or propose to) in the United States or its possessions
  • Has a tangible net worth less than $15 million and an average net income less than $5.0 million after taxes for the preceding two years.
  • Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
  • Be an eligible type of business. While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. Check this list of eligible and ineligible types of businesses to see if your company qualifies.
  • Under the 504 Program, Plan to use proceeds for an approved purpose. CDC/504 loan proceeds may be used for the financing of fixed assets like real estate or equipment. This list explains Eligible and Ineligible Use of Proceeds.
  • Not have funds available from other sources. SBA does not extend financial assistance to businesses when the financial strength of the individual owners or the company itself is sufficient to provide all or part of the financing. Both business and personal financial resources are reviewed as part of the eligibility criteria. If these resources are found to be excessive, the business will be required to use those resources in lieu of part or all of the requested loan proceeds.
  • Ability to repay the loan on time from the projected operating cash flow of the business
  • Good character. SBA obtains a “Statement of Personal History” from the principals of each applicant firm to determine if they have historically shown the willingness and ability to pay their debts and whether they have abided by the laws of their community
  • Relevant management expertise
  • Feasible business plan
  • Use of CDC/504 Loan Proceeds

A 504 loan can be used for:

  • The purchase of land, including existing buildings
  • The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
  • The construction of new facilities or modernizing, renovating or converting existing facilities
  • The purchase of long-term machinery and equipment

A 504 loan cannot be used for:

  • Working capital or inventory
  • Consolidating, repaying or refinancing debt
  • Speculation or investment in rental real estate

Contacts

2020-09-01T14:36:26+00:00Federal Programs, Loans, SBA|

General Small Business Loans: 7(A)

7(a) Loan Program Eligibility

SBA provides loans to businesses; so the requirements of eligibility are based on specific aspects of the business and its principals. As such, the key factors of eligibility are based on what the business does to receive its income, the character of its ownership and where the business operates.

SBA generally does not specify what businesses are eligible. Rather, the agency outlines what businesses are not eligible.  However, there are some universally applicable requirements. To be eligible for assistance, businesses must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be engaged in, or propose to do business in, the United States or its possessions
  • Have reasonable invested equity
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Use of 7(a) Loan Proceeds

If you are awarded a 7(a) loan, the loan proceeds may be used to establish a new business or to assist in the acquisition, operation, or expansion of an existing business.

7(a) Loan Amounts, Fees & Interest Rates

The specific terms of SBA loans are negotiated between a borrower and an SBA-approved lender. In general, the following provisions apply to all SBA 7(a) loans.

Loan Amounts

7(a) loans have a maximum loan amount of $5 million. SBA does not set a minimum loan amount. The average 7(a) loan amount in fiscal year 2015 was $371,628.

Fees

Loans guaranteed by the SBA are assessed a guarantee fee. This fee is based on the loan’s maturity and the dollar amount guaranteed, not the total loan amount. The lender initially pays the guaranty fee and they have the option to pass that expense on to the borrower at closing. The funds to reimburse the lender can be included in the overall loan proceeds.

On loans under $150,000 made after October 1, 2013, the fees will be set at zero percent. On any loan greater than $150,000 with a maturity of one year or shorter, the fee is 0.25 percent of the guaranteed portion of the loan. On loans with maturities of more than one year, the normal fee is 3 percent of the SBA-guaranteed portion on loans of $150,000 to $700,000, and 3.5 percent on loans of more than $700,000. There is also an additional fee of 0.25 percent on any guaranteed portion of more than $1 million.

Interest Rates

The actual interest rate for a 7(a) loan guaranteed by the SBA is negotiated between the applicant and lender and subject to the SBA maximums. Both fixed and variable interest rate structures are available. The maximum rate is composed of two parts, a base rate and an allowable spread. There are three acceptable base rates (A prime rate published in a daily national newspaper*, London Interbank One Month Prime plus 3 percent and an SBA Peg Rate).

Lenders are allowed to add an additional spread to the base rate to arrive at the final rate. For loans with maturities of shorter than seven years, the maximum spread will be no more than 2.25 percent. For loans with maturities of seven years or more, the maximum spread will be 2.75 percent. The spread on loans of less than $50,000 and loans processed through Express procedures have higher maximums.

*All references to the prime rate refer to the base rate in effect on the first business day of the month the loan application is received by the SBA.

Percentage of Guarantee

SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. SBA’s maximum exposure amount is $3,750,000. Thus, if a business receives an SBA-guaranteed loan for $5 million, the maximum guarantee to the lender will be $3,750,000 or 75%. SBA Express loans have a maximum guarantee set at 50 percent.

Contacts

2020-09-01T00:45:35+00:00Federal Programs, Loans, SBA|