Uses
Proceeds may be used for the acquisition, expansion or renovation of owner-occupied commercial real estate.  Project costs may also include interest on interim financing and professional fees related to the project. 

Borrower and Project Eligibility
To be eligible, the business generally must be operated for profit and have a tangible net worth of less than $7 million and an average net income of less than $2.5 million, after taxes for the preceding two years. The project must have a positive economic impact, generally evidenced by one job created by every $50,000 of SBA 504 debenture amount.  Loans that meet a public policy goal do not have to meet the job creation requirement.

Structure
The SBA 504 loan is typically structured as follows:

• 50% Bank Loan secured by a senior lien on the project.
• 30%-40% SBA 504 loan secured by a junior lien on the project.
• 10%-20% Equity from the borrower.

Borrower Equity Injection

A minimum of 10% equity is required.  If the small business concern has been in business less than 2 years or if the project is for a special-use facility, the minimum injection is 15%.  Should both of these apply then the equity injection is increased to 20% of the project.

Loan Amount

The SBA 504 portion of the loan generally does not exceed $1.5 million; however, the loan amount can be as high as $2 million should the loan qualify under a public policy goal.  In combination with the first mortgage loan, projects up to $6 million can be financed under the program.

Terms and Interest Rates

• Bank loan term and interest rate are negotiated.
• SBA 504 loan term is 20 years and the interest rate is fixed for the term.The SBA interest rate is set at the time the SBA loan/debenture is funded.

Collateral

Generally, the project assets being financed are used as collateral.  Personal guarantees are required from all 20% or more principal owners of the business.  Additional collateral may be required.

Benefits to the Borrower

• Reduced down payment requirement.
• Borrower is able to reserve capital for company growth.
• 20-year fixed rate below market financing on the SBA second mortgage.
• SBA 504 debenture is assumable by a qualified borrower.
  

Business Capital Group originates SBA 504 Loans through the U.S.Small Business Administration and its Lending Partners.