SBA 504 Loan

The SBA 504 Loan                  

The 504 Loan is our most powerful tool for small business financing. It provides long term financing for the acquisition, construction, or renovation of land, buildings and long-lived equipment at fixed, below market rates.

Key Advantages of SBA 504 loan over traditional business loans

• Lower down payment – the business owner pays only 10% down, borrowing up to 90% of the total financing needs, thus preserving cash for the business.

• Longer repayment terms – SBA repayment periods are longer than conventional bank loans – 20 years fully amortized for real estate loans and 10 years fully amortized for equipment loans. The borrower’s monthly loan payment is more affordable, improving cash flow.

• Below-market, fixed interest rate.

• Projected income consideration – SBA lenders consider projected income of a business in addition to historical cash flows. This is particularly advantageous for growing businesses.

• Collateral for the permanent loan  is usually confined to assets, financed, and guaranties  of the parties to the loan.

How the 504 Loan Works

Alacom Finance is certified by the U.S. Small Business Administration to package, close and service the 504 Loan. Our funds are obtained through the sale of SBA guaranteed debentures on the private capital market. The borrower must contribute 10-20% of the project cost as equity, either in cash or equity, in project related land or heavy machinery and equipment.

Alacom Finance provides a maximum of 40% of the project cost or $5.0 million, ($5.5 million in special cases and $ 5.5 million for manufacturing and/or green projects; 10% of total project must be green and verifiable) and/or public policy goals.

Who Qualifies

Eligible businesses include for-profit enterprises with a tangible net worth not exceeding $15 million, or average net profit after taxes may not exceed $5 million for the last two years. Passive investment companies, not-for-profit companies, lending institutions, real estate investment companies, gambling establishments, and recreation facilities not open to the public do not qualify for the 504 Loan. The 504 Loan may not be used for working capital, repayment, or venture capital. However, Alacom Finance can partner the 504 Loan with other loan programs including the 7(a) Loan, which may be used for any legitimate business purpose. Debt Consolidation can be done using the 504 Loan Refinance Program

Rates and Maturities

The interest rate on the 504 portion of the loan is determined at the time of the debenture sale and fixed for the life of the loan. Private lenders charge a market rate (fixed or variable) for their portion of the loan. Maturities are tied to the 504 portion of the loan.

Fees

Federal Statutory Fees are added to the proceeds amount provided by Alacom Finance and funded through the 504 Loan:

• 1.5% Packaging fees ($2500.00 Deposit)

• .5% Reserve against default to SBA

• .5% to Bond Underwriters

• Borrower Fee : 0.9375 (changes annually)

Alacom receives a monthly servicing fee paid by the borrower totaling 1% per annum Smaller and/or rural loans may be charged fees for extraordinary servicing, soft costs, legal fees and closing costs can be financed through the loan.

Please note: Congress &/or the SBA may change 504 / 7(a) program regulations & fees without notice.  

Job Creation Requirements

1 Job per $65,000.00
1 Job per $100,000.00 (Manufacturing)

Typical Loan Structure

A SBA-504 loan has three participants:

• Bank–provides a first lien for at least 50% of the total project cost.

• CDC–provides SBA-guaranteed 504 loan for up to 30-40% of the total project cost, or a maximum of $5 million ($5.5 million for manufacturing businesses).

• Small Business Owner – contributes a down payment of at least 10-20%.