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Get Funding: SBA's 504 Loans

Fixed Asset Financing for Small Business

Smoky Mountain Development Corporation (SMDC), a Certified Development Company (CDC) since 1987, administers the U.S. Small Business Administration (SBA) 504 Program in western North Carolina, with a focus on Cherokee, Clay, Graham, Haywood, Henderson, Jackson, Macon, Madison, Swain, and Transylvania counties, and the Eastern Band of the Cherokee Nation.

Quick Links: SBA 504 at a Glance - Typical SBA 504 Uses - Total Project Size - Loan Structure - Benefits to the Borrower - Benefits to the Community - Benefits to the Lender - SBA 504 Project Examples - How difficult is it to apply for an SBA 504 loan? - 504 Loans can be used for... - Advantages of an SBA 504 Loan - 504 Loan Structure

SBA 504 at a Glance

Fixed-rate financing for real estate and/or heavy-duty equipment (interest rate determined at loan cloasing)
20 year term for real estate and 10 year term for equipment
Down payments as low as 10%
Soft costs and fees can be financed
Available for both start-up and growing companies

Typical SBA 504 Uses

New construction
Purchase and renovation of existing business facilities
Heavy-duty equipment
Borrowers include retail, service, restaurants, hotels, bed and breakfasts, daycares, auto garages, medical and professional offices, entertainment, downtown revitalization projects, and many more.

Total Project Size

Typically ranges from $300,000 to $7-8 million
Up to $12 million for manufacturers

Loan Structure

Lender (bank) provides 50% in permanent mortgage financing, and up to 90% of interim financing, of total project costs
SMDC administers SBA funds, which covers 30-40% of permanent financing (40% for existing businesses, subtract 5% for start-up businesses and 5% for single use buildings)
SBA can finance up to $1.5 million of project costs, increasing to $2 million for public policy goals, and to $4 million for manufactuers.
Business owner priovides a minimum of 10% (add 5% for start-up and 5% for single use buildings)

SBA 504 Benefits to the Borrower

Low down payment, allows borrower to conserve working capital and grow the business
Longer repayment terms - 10 to 20 years
Fixed long-term interest rates on SBA portion
Borrower obtains loans banks would be unable to make without SBA participation (SBA takes subordinate position)
SMDC prepares most of the paperwork required for SBA approval

SBA 504 Benefits to the Participating Lender

Provides attractive terms to customers
Earn fees on first mortgage position. Price own interest rates, which can be either fixed or variable
Receive first position on 100% of collateral yet fund only 50% of project costs
SMDC prepares documents for SBA approcal and services the 504 loan
Helps lenders meet Community Reinvestment Act (CRA) compliance requirements
Smaller lenders can extend their lending limits
Growing companies generate more lender business

SBA 504 Benefits to the Community

Increases local tax base
Creates small business jobs
Diversifies local economy
Retains jobs - keeping jobs that otherwise would be lost
Increases opprotunities for economic development

Credit Standards

Job Creation - one job per $50,000 of SBA financing, except those meeting public policy/community development goals
Project Budget - matches borrower's situation
Business Management - shows demonstrated capability
Balance Sheet - business can not be overly leveraged
Cash Flow - sufficient to meet expenses and debt service
Industry Comparisons - must compare favorably with similar businesses
Personal Guarantee - all owners of 20% or more of the company must sign personal guarantee

SBA 504 Project Structure Examples

Typical
Bank Participation	50%	$500,000
SBA/SMDC	40%	$400,000
Borrower's Equity	10%	$100,000
Total Project:		$1,000,000
New Business OR Single Purpose*
Bank Participation	50%	$500,000
SBA/SMDC	35%	$350,000
Borrower's Equity	15%	$150,000
Total Project:		$1,000,000
New Business & Single Purpose*
Bank Participation	50%	$500,000
SBA/SMDC	30%	$300,000
Borrower's Equity	20%	$200,000
Total Project:		$1,000,000

*Single-Purpose examples include: gas stations, motels, car washes, bowling alleys, marinas or any other structures that have limited marketability or require great expense to render marketable.

How difficult is it to apply for an SBA 504 loan?

Smoky Mountain Development Corporation facilitates the entire application process by:

Preparing all SBA applications, thus reducing the paperwork for both the borrower and the lender
Advising on how to structure the project so that it meets SBA requirements, reducing completion time

For additional information on the SBA 504 Loan Program, Contact Allan Steinberg

504 Loans can be used to...

Purchase land and construct new buildings	Acquire and install machinery
Purchase and renovate existing buildings	Expand existing facilities

Advantages of an SBA 504 Loan

Low down payment - as little as 10%
Long term repayment - 10 or 20 years
Low, fixed interest rate on 504 debentures

504 Loan Structure

Example: $3,750,000 Project

	$ Amount	% of Project	Security
Bank Loan	$1,875,000	50%	1^st Lein
SBA/CDC Loan	$1,500,000	40%	2^nd Lein
Borrower	$375,000	10%
Total:	$3,750,000	100%

504 Financing works best on general projects up to $5 million and on manufacturing projects up to $10 million.