Wednesday, March 26, 2014

On Getting an SBA Loan

Welcome to the "life" part of the blog .... 

Summary of SBA 504 Program Parameters
Loan Limits:        $25,000 to $5,500,000
Eligible Uses of Funds: Basic uses include purchase of land and/or building, building construction and renovations, and machinery and equipment (10 year useful life or greater). Other costs essential to the project can typically be financed as well. Check with your NYBDC representative (Senior Loan Officers)  to discuss further.
Down Payment Requirements:                For all projects, a minimum down payment of 10% is required. The down payment requirement increases by 5% if the applicant is a new business or is purchasing an existing business * or if the property being purchased is considered special use. If the applicant is a new business and the project property is special use then a 20% down payment is required.
Maximum Loan Term:   20 years for real estate; 10 years for equipment. Projects involving both may qualify for 20 year term.
Interest Rate:   For the portion of the project financed by the SBA 504 program, a 20 year fixed interest rate is available. See the 504 rates chart for current rates. For the portion of the project financed by the bank, the interest rate is set by the respective bank.
Occupancy Requirements:          For an existing building, a small business must occupy 51% of the rentable property and may lease up to 49%. For new construction, a small business must occupy 60% of the rentable property, may lease long term up to 20% and temporarily lease an additional 20% with the intention of using some of the additional 20% within three years and all of it within 10 years.
Collateral Required:       In most cases the property or equipment being financed is sufficient to meet collateral requirements.
Size Standard Requirements      The small business applicant and affiliates must have combined net worth of less than $15 million and combined net income of less than $5,000,000 averaged over the last two years.
Job Creation:    For every $65,000 borrowed through the SBA 504 program, the applicant must create or retain one job. If the applicant is a manufacturer then one job must be created per $100,000 borrowed. Waivers to the job creation requirement exist for applicants that meet certain public policy goals including women and minority owned businesses. Contact your NYBDC representative to discuss additional waivers.
Mortgage Recording Tax:            For projects involving real estate, the mortgage recording tax associated with the SBA 504 portion of the financing is waived.
Program Fees: Total approximately 2.6% of the SBA 504 portion of the transaction. These fees cannot be paid out-of-pocket and are automatically financed.

Prepayment Penalty:    For the SBA 504 portion of the transaction, a prepayment penalty exists for the first 10 years and is a declining percentage of the outstanding loan balance. For transactions involving real estate, if the property is sold the SBA 504 loan may be assumed by the new buyer thus avoiding the penalty.