504 Business Loans
Structure of 504 Business Loans
The structure of 504 business loans makes it unique among all of the small business loans available to business borrowers. Three parties are usually involved:
50% a private sector participant (usually a bank)
will typically provide 50% of the financing for an eligible project and offer a 10 year term.
40% SomerCor 504, Inc.
will typically provide 40% of the required financing on an eligible project (this is the 504 Loan Program share). This is fully guaranteed by the Small Business Administration (SBA). SomerCor takes a second mortgage on the project assets, with a fixed rate, 20-year term.
10% the business itself
will contribute a minimum of 10% of the required financing as an equity injection. With an expansion or renovation project it is possible to count existing equity in project land or equity in an existing facility as part, or all, of the required equity contribution. In projects involving a “start-up” business (less than 2 years old), or, in projects with property that has a specialized, single-purpose use (for example, as gas station), the minimum equity contribution must be 15% and the maximum 504 loan program portion is 35%. If the project involves both a startup business AND a specialized, single purpose use property, the minimum equity contribution from the business entity must be 20% and the maximum 504 Loan Program portion is 30%.
Example Small Business Loan
The following is an example for a $1,000,000 loan (ie. Project Costs = Building $750,000 + Land $200,000 + Soft Cost $50,000)
|Conventional Loan||504 Loan|
Features of 504 Business Loans
Long term, fixed rate financing
Smaller businesses gain access to previously inaccessible public capital market and secure long term, fixed rate financing for expansion projects.
Low 10% down payment
This helps businesses preserve working capital for continued growth.
20 year fixed rate
The interest rate on SomerCor’s portion is an attractive 20-year fixed rate.
Project finance options
Businesses can finance all project related furniture, fixtures and equipment, plus many soft costs, such as appraisals, title searches, and architectural fees.
Suitable loan terms
The term of SomerCor’s business loan more closely matches the life of the assets being acquired or improved.
Fully assumable loan
504 business loans are fully assumable. If, during the life of the loan, you decide to sell the project property, SomerCor’s portion of the loan can stay with the property, as long as the buyer qualifies under program guidelines.
The 504 business loan process is efficient and straightforward.
The funds are 100% guaranteed by the U.S. Small Business Administration.