Info & Requirements

Info & Requirements

504 Environmental Requirements

504 Appraisal Requirements

Typical 504 Structure

  • The bank provides a loan for 50% of the project costs and takes a first lien on the project assets
  • The CDC provides up to 40% of the project costs (up to a maximum of $5 Million) and takes a second lien on the project assets
  • The business contributes at least 10% of the project costs

Terms, Rates and Fees

  • The bank portion of the project typically carries a minimum 10 year maturity with a 20 or 25 year amortization. Rates and fees are negotiated between the borrower and the bank.
  • The CDC portion can be either a 10 year or 20 year term (fully amortizing). The interest rate is priced monthly over the 5 or 10 year Treasury at a market driven spread plus costs. The 504 fees are financed in the 504 loan. Attorney fees in excess of $2,500 are an out of pocket cost to the borrower.

Which businesses are eligible?

Most privately held companies are eligible. The business must be:

  • Small (less than $15 Million in net worth and less than $5 Million in after tax income on average for the last two years)
  • A for profit firm

What can be financed with a 504 Loan?

  • Acquisition/Construction of Owner Occupied Commercial Real Estate including:
    1. Existing Buildings
    2. Addition/Major Renovation
    3. Land/Building Construction
    4. Buildings on Leased Land
  • Other costs that can be included in the financing package include:
    1. Renovations
    2. Minor amounts of FF&E
    3. Appraisal & Environmental
    4. Title & Recording Taxes
    5. Closing Costs, Bank Points
    6. Design costs
  • Existing conventional mortgages can be refinanced as follows:

    1. In an expansion project, the lesser of 50% of the Existing Debt or 50% of the new costs can be included in the 504 project
    2. Existing conventional mortgages and related closing costs can be refinanced through 9/30/2012. Click here for more information.
  • Machinery and Equipment with a minimum 10 year expected life (i.e,, printing presses or manufacturing equipment) as a standalone project or in conjunction with a building project

Loan Requirements

Occupancy

  • Existing Building: The business must occupy at least 51%
  • New Construction: The business must immediately occupy at least 60% with:
    1. An additional 20% expected to be occupied in 10 years
    2. 20% may be permanently leased out

Down Payment

  • Typically, the down payment is 10%
  • If the business has less than a 2 year operating history or is changing management, it will be considered a start-up business subject to a 15% down payment
  • If the building is considered “Special Use” (i.e, a hotel, car wash, gas station, etc.) a 15% down payment is required.
  • If the business is a start up and the building being financed is a special asset, the down payment required is 20%.

Project Size

  • The Minimum Project Size is $200,000
  • There is no Maximum Project. The 504 loan is typically limited to $5 Million, but the 1st lender can lend more than 50% of the project costs. Projects could be as large as $20 Million.
  • If the project is assisting a small manufacturer or certain energy efficient projects, the the 504 loan limits are $5,500,000 per project.