To qualify for a SBA-504 loan, a business must:
- Be owner-operated
- Be for-profit
- Be organized as a sole proprietorship, corporation, partnership or limited-liability corporation (LLC)
- Have net worth no greater than $15 million and net profit after taxes below $5 million in the last two operating years
- Have 51% owner occupancy for an existing building
- Have 60% owner occupancy for new construction
- Equipment must have a minimum 10-year economic life
Terms, Rates and Fees
The bank portion of the loan package is typically amortized with a minimum term of 10 years up to a maximum of 25 years. Rate term and fees are negotiable between the borrower and bank.
Lone Star’s portion can be offered with term options of 10 or 20 years fully amortized. The interest rate on a 504 loan is set at an increment above the current market rate for five-year and ten-year U.S. Treasury issues. Fees are approximately 2.125% of the loan amount, plus a fixed fee for a legal review. All fees are financed in the 504 loan.
The 504 loan is typically secured with a subordinate lien on project assets. The Small Business Administration requires that the 504 loan must have a security interest in all project assets. We can recognize existing prior liens in the case of building expansions and renovations.
Personal guarantees of all principals owning more than 20% of the company are required. If the business is a start-up or the asset being financed is considered single purpose or the credit is unusually risky, additional collateral may be required. Key Man life insurance is typically required unless there is a strong management succession.