LENDERS | EXPAND YOUR PORTFOLIO WITH LOW-RISK 504 LOAN PACKAGES

Looking for a way to attract commercial customers? Try the SBA 504 Loan. Healthy businesses, who plan to invest in equipment or real estate for their own use, could qualify for attractive financing using the SBA 504 Loan Program – in a way that can help you meet policy and regulatory guidelines.

These are the key SBA 504 advantages for your financial institution:

  • You have first lien position with a low loan-to-value, minimizing your collateral risk.
  • You make your own credit decision and use your own loan documentation.
  • There is no SBA paperwork for you to complete, yet you can comply with CRA.
  • You set your own rate and fees.

Typical 504 Financing Structure

Project
Costs
Source
Lien
Funding Limit
Rate
Term Real Estate
Term
Equipment

50%
Bank
1st
None
Market
10 + Yrs
7 + Yrs
40%
504
2nd
$5,000,000
Fixed
20 or 25 Yrs
10 Yrs
10%
Equity

GREAT BENEFITS FOR LENDERS!

Mitigation of credit risk: Lenders have first lien position and typically a 50% loan-to-value ratio, minimizing collateral risk. The SBA can only liquidate its collateral if the lender is paid in full.

Management of Overall Lending Limits and Industry Exposure: With 504, smaller banks can entertain larger projects. Even larger banks can limit their exposure to certain industries and/or to a particular borrower. The reduction of CRE loan concentration on your balance sheet reduces regulatory concerns.

Can Assist More Customers: Leverages lending capacity across more borrowers and diversifies default risk and reduces loss in the event of default.

Gain New Customers: SBA 504 loans are designed to finance growth companies. An entrepreneur who is investing in a permanent facility is often entering into his largest business-related loan. An SBA 504 loan often becomes the basis of an entire banking relationship.

Active Secondary Market: There is an active secondary market for 504 first mortgage loans, so banks can reduce their exposure to zero and enhance their non-interest income while retaining the customer’s primary banking relationship.

Strengthening of Core Earnings: Pricing of the bank’s loan is at its discretion. 90% financing also means that more of the customer’s funds remain on deposit. The bank is able to earn fees and interest on the interim loan, and generate fee income from sale premiums and loan fees if it chooses to sell the first mortgage loan in the secondary market.

CRA Credit: Banks that participate in SBA 504 loans are eligible for Community Reinvestment Act (CRA) credit on certain projects.


SBA 504
REFINANCE FOR EXPANSION PROGRAM

WHAT IS THE 504 REFINANCE FOR EXPANSION PROGRAM?

The Refinance for Expansion Program is a permanent addition to the 504 Loan Program,
that allows for the refinance of existing debt with the expansion of a new project.

WHO CAN QUALIFY?

• Businesses expanding on an existing project
• Most for-profit, small businesses in the U.S.
• Businesses with at least two years of operations
• Net worth less than $15.0 million
• Net profit after tax (2 year average) of no more than $5.0 million (including affiliates)
• Borrower cannot be more than 30 days past due during the past 12 months on payments on the  note being refinanced
• Business must occupy at least 51% of its property at the time of application