504_financing
Table of Contents
SBA 504 Loan Program: Step-by-Step Procedural Guide
Overview
The SBA 504 loan program is a small business financing option that provides long-term, fixed-rate financing for major fixed assets like real estate and equipment.
Structure
- First Mortgage (50%): Conventional lender
- Second Mortgage (40%): CDC/SBA portion
- Down Payment (10%): Business owner
- May increase to 15% for new businesses
- May increase to 20% for special-use properties
Step 1: Prequalification
- Verify business eligibility:
- For-profit business
- Net worth under $15 million
- Net income under $5 million after taxes
- Owner must occupy 51%+ of property
- Project must create/retain jobs or meet public policy goals
- Gather required documentation:
- Business financial statements (3 years)
- Tax returns (3 years)
- Business plan
- Personal financial statement
- Real estate information or equipment specifications
- Project costs breakdown
Step 2: Application Process
- Identify and apply with a Certified Development Company (CDC)
- CDC is a nonprofit organization certified by SBA
- Will assist with application package
- Helps structure the deal
- Secure conventional lender for first mortgage
- Usually a bank or credit union
- Must provide minimum 50% of project cost
- Conducts own underwriting process
- Complete CDC/SBA application package:
- SBA Form 1244
- Business organization documents
- Environmental studies
- Real estate appraisal
- Equipment appraisals (if applicable)
- Construction plans (if applicable)
Step 3: Underwriting
- CDC Review
- Analysis of business financials
- Verification of job creation/retention
- Project feasibility study
- Credit analysis
- SBA Review
- Final approval authority
- Reviews CDC recommendation
- Issues authorization if approved
Step 4: Closing Process
- First Mortgage Closing
- Conventional lender closes their portion
- Funds held in escrow
- CDC/SBA Debenture Closing
- CDC prepares closing documents
- SBA reviews and approves
- Debenture sale scheduled
- Funding
- Debenture sold to investors
- Funds disbursed
- Project completed
Step 5: Post-Closing Requirements
- Ongoing Reporting
- Annual financial statements
- Tax returns
- Insurance certificates
- Job creation verification
- Compliance Monitoring
- CDC annual inspections
- Occupancy requirements
- Job creation/retention verification
- Insurance maintenance
Timeline Expectations
- Prequalification: 1-2 weeks
- Application preparation: 2-4 weeks
- CDC/SBA approval: 4-6 weeks
- Closing process: 4-6 weeks
- Total typical timeline: 3-4 months
Key Requirements Throughout Process
- Maintain good communication with CDC and lender
- Respond promptly to information requests
- Meet all deadlines for document submission
- Keep detailed records of all transactions
- Maintain required insurance coverage
- Comply with all SBA regulations and requirements
504_financing.txt · Last modified: by admin
