Closing your 504 Loan

Do you have your final certificate of occupancy?

A final occupancy permit is required for all newly constructed or renovated facilities. Generally, all construction or renovation must be complete before a final occupancy permit can be obtained.

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Have all the loan proceeds been spent?

All bank loan proceeds must be spent. The only possible exception is money budgeted for interest carry on your loan until the date of bond sale. We will work with your lender to assure the funds are fully disbursed.

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How was the money spent?

It is the responsibility of Business Finance Group to verify that all the money was spent as outlined in the Authorization for Debenture Guarantee (the commitment). We will work with you and the bank to obtain the information. Please keep careful records of your equity contribution since we may need to request copies of cancelled checks and paid invoices.

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When can my 504 Loan close?

Once any construction or renovation has been completed, all of the bank’s loan proceeds have been spent, you have made your equity contribution, and all other closing conditions have been met, we can close your 504 Loan.

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When will the bond sell?

A bond sale occurs once a month. Typically, if we can close your 504 Loan in the first 7-10 days of a month, your bond will sell the following month.

At the time the bond is sold, your interest rate and payment amount will be set.

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Frequently Asked Closing Questions

Can the building be owned by an entity other than the operating company?

Yes, that is permitted. To assure no speculative real estate transactions are financed with a 504 Loan, the operating company, the real estate holding entity, and all 20% or more individual owners must guarantee the loan.

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If the operating company is leasing the building from a real estate holding entity, what documentation is needed?

1. Leases
If the Borrower is different from the Operating Company, there must be a lease between the Borrower and the Operating Company for 100% of the property being financed with a 504 Loan. If there are third-party tenants, the sublease must be between the operating company and the third party tenant. We can provide form leases that meet our requirements, but you should consult your legal and tax advisors prior to using them.

2. Subordination Agreements
Every lease and sublease on the property must be made subordinate (or junior) to the 504 Deed of Trust. The Operating Company and any subtenants must sign the Subordination Agreement related to their lease or the sublease may be assigned to the Operating Company.

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When do we contribute our down payment?

The equity contribution must be made prior to the 504 closing. Most often, your equity will be required when you acquire the property or close on the construction loan. At the 504 Loan closing, proof of the contribution is required (a settlement statement, cancelled checks, paid invoices).

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If the loan involves construction, are there any additional documents we must provide?

The following information is needed by all the lenders for construction projects:

• Final mechanics lien releases (to obtain title insurance)
• An as-built survey (also to obtain title insurance)
• Final Certificate of Occupancy
• Evidence of construction expenditures (may be provided by the bank)

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What are the insurance requirements for this loan?

Hazard insurance must be obtained for the property and equipment. It must be for the full replacement cost and contain a mortgagee clause in favor of SBA and Business Finance Group. Evidence of liability and workmen’s compensation insurance must also be provided.

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Do we need to submit new financial statements?

Financial statements for the operating company dated within 120 days of the closing will need to be submitted.

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