SBA 504 loans can be used for purchasing or constructing buildings, as well as refinancing in certain circumstances. This program offers low fixed interest rates.

Structure

This program is a bit more complicated than the SBA 7(a). There are three different approvals to obtain and three different loans. When all the processing is done, you will end up with loans that typically total 90% of the purchase price (85% on special use properties). A lender provides a 50-60% first trust deed, and the SBA provides the balance as a direct loan in second position.

The 1st Trust Deed

Many banks and finance companies participate in the SBA 504 loan program by offering the 1st trust deed loan. By shopping all these lenders through HBS Finance, you have numerous options to select from. Amortizations range from 10 to 30 years. Balloon loans and fully amortized loans can be found. You can choose a fixed or adjustable interest rate. Among the fixed rate loans you can choose to have it fixed for anywhere from 1 to 25 years.

We will help you understand the benefits and drawbacks to each alternative and simplify the selection process.

The Bridge Loan

The bank funds its loan at the close of escrow, but the SBA cannot fund for several more months. So in every 504 loan, the lender doing the 1st trust deed loan also does a second, short term “bridge” loan equal to the amount of the eventual SBA loan. Lenders normally offer this loan as an adjustable rate, interest only loan.

The SBA 2nd Trust Deed

After you have closed escrow, finished any construction and moved into your building, the SBA sells government bonds (literally “debentures”) to raise your needed funds. Your rate will actually be set at the time of this sale. Some people are uneasy about committing to a loan without knowing the rate. But you can be confident it will be better than any rate you could get through a bank.

Terms and Processing

The SBA loan is fixed and fully amortized over 25 years. (10 year and 20 year amortized loans are also available at a lower rate.) The application, processing and servicing of the loan is handled by a non-profit agency known as a Certified Development Company (CDC). We submit your loan package to the CDC for their approval. Then they forward it to the SBA for the final approval.

Loan Fees

The fees on this loan total about 2.8%. Fortunately, the fees are always added into the loan, which reduces your out of pocket costs at closing.

Prepayment Penalties

Fixed rate loans have prepayment penalties, so you should match your loan with your ownership plans. The SBA loan has a very steep penalty initially, but it declines over ten years. Fixed 1st trust deed loans from banks and finance companies have a variety of prepay penalties. We will explain each one to you as you consider your options.

To obtain these loans you must meet the SBA eligibility rules and you must qualify.

Let us put our experience and expertise to work for you. Call us (310) 356-6500