SBA 504 Real Estate Loan
The 504 loan program was created by the U.S. Small Business Administration to offer attractive financing options for projects involving owner-user real estate or equipment acquisitions. Under this program, the Bank funds the 1st trust deed, covering up to 50% of the costs, and an SBA-licensed agency called a certified development company (CDC), takes a 2nd position loan, covering up to 40% of the costs, at extremely favorable rates and terms. A minimum 10% contribution is required by the borrower.
Benefits to 504 borrowers include the following:
- Low down payment, preserving more operating capital
- Extended 20-year term, resulting in lower monthly payments than loans of shorter duration at competitive rates
- Most fees and costs can be financed into the loan
- Tax Advantages over leasing
Since Discovery Bank will fund the 1st deed and “bridge fund” the CDC portion, the process is guided primarily by the bank rather than SBA. Eligibility is open to any type of business – retail, service, wholesale or manufacturing – provided the business is independently owned, at least one year old, is organized as a for-profit corporation, partnership or proprietorship, and meets minimum net worth requirements.
Term |
10 - 25 years for the 1st Trust Deed, and 20 years for the 2nd Trust Deed. |
Collateral |
1st Trust Deed for 50% of project costs, and a 2nd Trust Deed for 40% of costs on real estate being acquired. |
Down Payment |
Minimum of 10% on general purpose property, and 15% on special purpose property. |
Advance Rate |
Up to 90% financing for commercial real estate. |
Rates |
Based on current market rates. |
Guarantee |
Loans to privately held corporations require the personal guarantee of all principals holding 20% or greater ownership interest. |