Answers for Lenders
For 504 loans the bank will process the application as it would any loan request. BEFCOR will share its credit underwriting analysis with the bank to accelerate the time to loan approval. The bank loan officer should make sure all appraisals and environmental reports are ordered naming the bank, SBA and BEFCOR, as intended report recipients.
Once the bank commitment letter is received it is sent to SBA with the 504 application package. The bank can close the loan using its own loan documents after the SBA has approved the 504 project. Generally the bank provides all of the funds to complete the project in excess of the owner’s down payment during the construction period, based on the SBA agreement to pay down the bank’s loan by the amount of the 504 loan.
When the project is completed, as evidenced by a certificate of occupancy, the 504 loan can close. The bank will need to provide copies of its loan documents, documentation of all of the project costs funded and will need to state that no adverse change is evident in the borrower’s financial condition.
- The Lender Loan must have a term of at least seven years when the 504 loan is for a term of 10 years and at least 10 years when the 504 loan is for 20 years
- Interest rates must be legal and reasonable
- The Lender Loan must not have any early call feature or contain any demand provisions unless the loan is in default
- The Lender Loan must not be open-ended
- The Lender financing must be equal to or greater than the debenture
- The net debenture may not exceed 40% of the project’s total cost
- The borrower’s injection must be at least 10% of the total project cost, and may be more, as required by statute or for credit reasons
- No more than 50% of the project costs can come either directly or indirectly from Federal sources
Community Development Goals:
- Improving, diversifying or stabilizing the economy of the locality
- Stimulating other business development in the community
- Bringing new income into the community
- Assisting manufacturing firms (NAICS Codes 31, 32 and 33)
- Assisting business in a labor surplus area
- Enhanced economic competition though advancement of technology, plant retooling, or conversion to robotics
Public Policy Goals
- Revitalize a business district of a community with a written revitalization or development plan
- Expand exports: The business must derive a least 10% of its revenue from export sales at the time of the project or will be 10% of the business’s revenue as a result of the project
- Aiding rural development
- Changes necessitated by federal budget cutbacks
- Change required by a federally mandated standard such as health, safety & environment
- Expand minority business development (owned 51% or more by minority business person)
- Expand women-owned business development (owned 51% or more by a business woman)
- Expand veteran-owned business development (ownership 51% or more by a veteran)
- Incorporate energy saving technologies for sustainable design
CDCs can go up to $2,000,000 in SBA financing when public policy or community development goals are met.
Financing is available for up to $4,000,000 for:
- Eligible manufacturing projects
- Projects that generate renewable energy like solar, wind or geothermal
- Small businesses wishing to purchase, construct or retro-fit facilities incorporating energy saving technologies that result in a 10% decrease in energy consumption.