If you are considering getting a 504 loan from the Small Business Administration (SBA), you might have questions about closing costs and other fees. While there are fees for an SBA 504 loan, they are generally not very noticeable to the borrower because most of them are rolled over into the loan. This means there is no out of pocket expense for the borrower apart from the 10-15% down payment and minor closing expenses.

Even so, it can be helpful to visualize how these fees break down. Therefore, we are providing a comprehensive list of possible fees and expenses. This list covers fees for the 504 loan and 504 refinance loan, which are the same apart from one exception, which is noted below.

PROCESSING FEES

Processing fees are mandatory one-time fees that are included in the loan. Percentage are expressed in relation to the net debenture, which is the 504 loan amount plus fees and expenses.

Funding Fee

0.25%

This fee (combined with the CDC processing fee) is comparable to conventional loans’ origination fees.

CDC Processing Fee

1.50%

This fee (combined with the funding fee) is comparable to conventional loans’ origination fees.

Attorney Fee

$2,500

The CDC’s attorney prepares documents, renders an opinion on the loan for the SBA and supervises the closing of escrow.

Underwriting Fee

0.40% (estimated)

Underwriting fees cover the process and expense of analyzing and verifying a loan application by the SBA.

The cost of processing has come down in recent years, as there is a guarantee fee that is currently being waived.

THE BRIDGE LOAN AND ESCROW

When the 504 loan is being used for acquisition of property, a very short-term bridge loan is almost always used in an effort to close escrow more quickly. These bridge loan have fees and interest, which are paid for from the debenture. The bridge loan is usually arranged by the Certified Development Company (CDC) and the conventional lending partner, without requiring any action by the borrower.

Payment of the bridge loan requires alterations to the deed of trust (a process known as reconveyance) and issuance of new title insurance to reflect the new financial status of the loan. Those actions also entail fees that are paid by the borrower. There is a fee for the escrow service as well.

Note: When the 504 loan is being used for construction or renovation, the 504 loan is not funded until after the completion of construction.

CLOSING COSTS & RELATED FEES

You pay a deposit of $2,500 or 1% of debenture proceeds, whichever is less, at the time of application. The deposit is refunded within 60 days of debenture funding. The escrow fee is deducted from this amount, and there is a variety of fees that might also be deducted. These fees, along with the origination fees, are what are traditionally referred to as closing costs.

Depending on the specific circumstances of the loan, these fees might include:

  • Appraisal fees
  • Environmental assessment fees
  • Lender points
  • Lender bridge loan points
  • Buyer’s and lender’s title insurance
  • Hazard insurance
  • Flood insurance
  • Miscellaneous fees, such as IRS verification, credit reports, tax service fee, flood certification, certification of corporate status, UCC filing, administrative expenses and overnight mail fees

Be An Informed Borrower!

This information is here to give you an idea of what fees exist and where they go. You can be sure that your CDC will let you know which fees apply to your loan and will see to it that they are paid as necessary. If you have questions about the fees for the 504 loan, you can ask one of TMC’s 504 loan experts.  Contact TMC Financing today!