Typical 504 Loan Structure

Down Payment Requirements

Typically, the small business contributes 10% of the project costs. If the business is a start-up business (less than 2 years of operating history), the down payment increases to 15%. If the loan will finance a special or limited use asset, the down payment increases to 15%. If the project is for a special use asset being financed for a start-up business, the down payment increases to 20%.

Eligible Businesses

The applicant must be a for-profit business whose business net worth is less than $7 million and after tax income is $2.5 million or less on average for the last two years.

Eligible Projects and Project Costs

504 financing is used to acquire, construct, renovate or expand an owner occupied facility. It can also be used to acquire machinery and equipment with a useful life of at least 10 years.

In addition to the acquisition and construction costs, the “soft costs” (appraisals, environmental, construction interest, closing costs, etc.) may also be included in the total 504 project. This allows the business to preserve working capital that will be needed in the larger facility.

Occupancy Requirements

In circumstances where a tenant will not vacate some or all of the space to be occupied by the small business, the 504 Loan can proceed to closing if there is no more than 1 year remaining on the lease.

504 Project Sizes

Project sizes typically range from $200,000 to $16,000,000 with the 504 Loan size ranging from $50,000 to $1,500,000 ($2,000,000 when public policy goals are achieved). For a small manufacturer, the 504 portion can be as large as $4,000,000. The first trust loan can exceed 50% of the project enabling larger companies to take advantage of the benefits of the 504 Loan.

What’s the Banker’s Role?

The first trust lender processes its loan as it would any loan request. Business Finance Group and the bank can work together to collect documents from the borrower, and we can share our credit underwriting with the bank. The bank closes using its own loan documents.

Appraisals and environmental reports should be ordered naming all parties (the bank, Business Finance Group and the SBA) with copies provided to us as received.

Generally, the bank provides “interim” or “bridge” financing. The 504 Loan is a permanent loan. During the construction or renovation period, the bank would provide the full 90% financing based on the 504 commitment to pay the bank down once the business occupies the property.

When the 504 Loan closes, the bank will be asked to provide copies of its loan documents, provide copies of its draw schedules (for construction or renovation projects), certify that there has been no adverse change in the borrower’s financial condition, and agree to provide 60 days notice of default/foreclosure proceedings.

Top Twenty Participating First Trust Lenders

1.   BB&T
2.   Wachovia Bank, N.A.
3.   Bank of America, N.A.
4.   SunTrust Bank
5.   Provident Bank
6.   United Bank
7.   Mercantile Bank & Trust
8.   Access National Bank
9.   Cardinal Bank
10. Alliance Bank
11. Burke & Herbert Bank & Trust Company
12. Virginia Commerce Bank
13. Resource Bank
14. M & T Bank
15. The Middleburg Bank
16. Zions First National Bank
17. GE Capital Corporation
18. Planters Bank & Trust Company
19a. Marshall National Bank & Trust Company
19b. The Business Bank
19c. The Fauquier Bank
19d. Valley Bank