SBA 504 Program
Frequently Asked Questions
SBA 504 Purpose
The SBA 504 Program provides small business owners with affordable financing options to purchase real estate for their business. The SBA 504 Program allows borrowers to construct new facilities, purchase equipment/furnishings, upgrade facilities, or add clean energy efficiencies to their building.
SBA 504 Structure
- A conventional lender provides 50% of the total project cost
- A CDC (Such as TMC Financing) /SBA provides up to 40% of the total project cost
- The borrower provides a 10% down payment (15% for new businesses or special purpose properties)
The maximum size of the SBA debenture per project is $5 million or $5.5 million for manufacturers or energy efficient projects. However there is no limit on the first mortgage or the total project size. TMC Financing has financed projects from $500,000 to $44 million.
Most for-profit businesses in the United States are eligible for an SBA loan! There are a few stipulations, but for the most part the 504 loan can stretch to accommodate a unique array of business needs. You must occupy at least 51% of the building or 60% for new construction.
Certified Development Companies (CDCs) are nonprofit organizations that offer affordable financing to small businesses and are certified and regulated by the Small Business Administration (SBA). CDCs facilitate the 504 Loan Program and other SBA programs from beginning to end. There are 230 CDCs nationwide, each covering a specific geographic area. Some CDCs, like TMC Financing, have been granted “premier” status by the SBA, which means they can make credit decision on behalf of the SBA and expedite the SBA’s approval process. Premier CDCs can get loan approval in as few as 30 days.
504 loans can be used to purchase land, buildings and equipment, as well as various property improvements and energy upgrades. You can use the funds to buy, construct, or repurpose a building including any renovations necessary.
A 504 loan has three parts: 50% of the loan is provided by a conventional lender with a guarantee provided by the SBA. 40% is provided by the CDC/SBA. The borrower only needs to provide a down payment of 10% (or 15% for hospitality projects or startups companies).
We work with absolutely any bank. We can work with your current bank, if you already have one, or we can help you find a bank that best serves your loan needs. We have long standing relationships with all types of lenders and can help you determine which one is best for you. In addition to conventional bank lenders, we can work with, credit unions and savings/loan associations.
Both loans are valuable programs offered by the SBA, but they are designed for different purposes. They both can be used to purchase real estate and fixed assets, however the 7(a) loan can also be put towards working capital. The 504 loan offers a low, fixed rate, while the 7(a) interest rate is often variable and unpredictable.
You can prequalify in as few as 18 to 48 hours. TMC Financing will request several forms from you: three years of personal and business tax returns, a personal financial statement, and interim financials. We’ll confirm your eligibility, let you know how much you can borrow, discuss the down payment in advance of your applying for the SBA 504 loan. You know where you stand at any time.
Yes! The SBA 504 program offers business owners the opportunity to secure below-market, fixed interest rates, amortized over 25 years, for up to 90% of the appraised value of commercial real estate property. Owners can take cash out for qualified business expenses, which include salaries, rent, utilities, inventory, or other obligations of the business. The eligibility requirements are the same as the standard 504 loan.
When your loans close and your SBA 504 loan is funded, you’ll incur various fees, totaling approximately 2.65% of your loan amount, plus an attorney closing fee of $2,500. These fees are financed within the debenture loan proceeds so they are not out-of-pocket expenses.
Loans are usually approved by the SBA within 30-60 days, often less. Construction loans sometimes take a bit longer. Premier CDC’s can make the credit decision on behalf of the SBA, which expedites the approval process. TMC’s team is efficient and known to close loans faster than our competitors, so we can work with you to meet your deadlines.
Yes! As long as the combined SBA portion does not exceed $5 million (or $5.5 for manufacturers or green projects). Green projects are able to exceed the traditional project maximum.
Yes, you can. There is no penalty if you pay off your 504 loan at any time in the second half of the loan’s term. The prepayment penalty in the first half of the term begins at the debenture rate (usually less than 3%) and declines by 10% annually, calculated at six-month intervals.
Wells Fargo Corporate Trust Services is the central servicing agent for SBA 504 loans. This means that the SBA has contracted them to process all 504 loan payments and maintain accounting for the program. They do not provide any services directly to borrowers, so any servicing questions should be directed to your CDC’s servicing department.
Yes. If you sell your property, the buyer can assume the loan with SBA approval. A prepayment penalty does not apply.