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SBA 504 Loan Structure
How is an SBA 504 project structured?
SPEDCO works with the SBA to provide up to 40% of the total project cost. The participating lender normally finances at least 50% of the cost. The borrower typically puts down as little as 10% of the total project cost. |
% |
Project Cost |
Source of Funds |
Interest Rate |
50% |
$1,250,000 |
Private Lender |
Fixed or Variable |
40% |
$1,000,000 |
SPEDCO/SBA |
Fixed |
10%* |
$250,000 |
Business Borrower |
|
Total |
$2,500,000 |
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*Start-up AND/OR Special Purpose Building may require a higher percentage of equity.
Costs do not include fees. |
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Why is an SBA 504 loan the right choice for commercial lending?
Compared to a 7(a) loan, an SBA 504 loan offers: |
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A fixed rate of interest |
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Lower fees, upfront and during the life of the loan |
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Huge cost savings, especially in a rising-interest rate environment |
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COMPARATIVE ANALYSIS
504 VS 7(a) (prepared 5/20/09) |
|
CDC 504 DEBENTURE LOAN |
BANK 7(a) LOAN |
| SBA 504 (net) |
$400,000 |
40.00% |
|
|
|
| Bank |
$500,000 |
50.00% |
|
$900,000 |
90% |
| Down Payment |
$100,000 |
10.00% |
|
$100,000 |
10% |
| TOTAL PROJECT |
$1,000,000 |
100% |
|
$1,000,000 |
100% |
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BANK |
DEBENTURE |
TOTAL |
BANK |
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| Loan Amount |
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| Interest Rate |
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|
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| Terms |
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| Years Amortized |
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| Bank Points |
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| SBA Guaranty Fee |
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| CDC Process Fee |
|
$6,000 |
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| CDC/SBA Legal Fee |
|
$2,000 |
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| SBA Guarantee Fee |
|
$2,000 |
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| Funding Fee |
|
$1,000 |
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| Underwriter Fee |
|
$1,652 |
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| Other Fees |
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| TOTAL FEES |
$2,500 |
$12,652 |
$15,152 |
$28,125 |
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| TOTAL LOAN AMOUNT |
$502,500 |
$413,000 |
$915,500 |
$928,125 |
|
| Monthly Payment |
$3,600.07 |
$3,079.22 |
$6,679.28 |
$5,979.92 |
|
| Effective Interest Rate |
6.00% |
5.25% FIXED |
5.62% |
6.00% FLOATING |
|
Total Principle
and Interest |
$756,278 |
$739,012 |
$1,495,290 |
$1,739,977 |
|
| Cash Down* |
|
$100,000 |
$100,000 |
$100,000 |
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| Total Cash |
|
|
$1,595,290 |
$1,893,977 |
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| TOTAL CASH SAVINGS |
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$298,687 |
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| *including bank closing costs |
TOTAL CASH SAVINGS calculated using the assumption that the PRIME interest rate remains at the current level. An increase in the PRIME interest rate would substantially INCREASE the TOTAL CASH SAVINGS.
The above is our best estimate with the information that is currently available. |
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The SBA 504 loan program is a partnership program between a Certified Development Company (CDC), such as SPEDCO, and a lender. The SBA 504 loan program is an economic development loan program to promote growth and job creation in American small businesses by providing fixed-rate, long-term financing for land, buildings and manufacturing equipment or machinery.
What role does SPEDCO play in an SBA 504 loan?
SPEDCO is the liaison with the SBA, helping lenders and borrowers through the paperwork and approval process. We structure the project, prepare loan documentation and monitor the whole project through closing. We also service all aspects of the SBA 504 loan for the entire term of the loan. We have earned the reputation for being ethical, efficient, and totally committed to customer service. |
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