Lender Benefits & Eligibility


 


SBA 504

August 2017

20-Year Fixed Rate:

4.537%

10-Year Fixed Rate:

4.497%

Historical Rate Graph

 

  Lender Benefits
  • Reduce Your Risk
    SBA is a secondary lender, providing a direct loan in a subordinate lien position improving the bank's collateral position and reducing risk.  Unlike the SBA 7(a) Guarantee program, the bank's SBA 504 first mortgage loan is not a government restricted loan, but rather a conventional loan with a senior collateral position (generally with 50% LTV).  BLP handles all of the government paperwork and servicing.
  • Increase Small Business Lending
    The bank's exposure is reduced by partnering with SBA on the financing of a project.  By mitigating their risk through this program, banks can provide more loans and offer opportunities to more businesses.  Additionally, banks can provide more loans to the same business prior to hitting legal lending limits.
  • Obtain CRA Credit 
    Banks can potentially obtain CRA credits by participating in on of our lending programs.
  • Increase Your Portfolio
    We structure, evaluate, process and service SBA loans which cannot be done conventionally.

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Eligible Use of Funds
  • Land Acquisition
  • Site Improvements
  • Existing building purchases, expansions or renovations
  • New construction
  • Equipment purchases and installation
  • Project related costs such as furniture and fixtures, title insurance fees, legal fees, appraisals, environmental reports, architects fees, survey costs, points on bridge loans, etc.
  • Refinancing – Limited debt refinancing is permitted but must involve a business expansion where the refinance may not exceed 50% of the project costs (other restrictions apply).
 
Ineligible Use of Funds
  • Working Capital
  • Inventory
  • Vehicles licensed to be on the roads (trucks, cars)
  • Stock purchases
 
Eligible Businesses
  • Must be a for-profit entity
     
  • Size Standard:
    The business must be small as defined by SBA as those businesses with a net worth below $15 million and an average net profit (after taxes) for the last two years of below $5 million.  If these standards are exceeded, the business can still qualify for the program by meeting other SBA size standards based on either number of employees or annual revenue, depending upon the industry.

     
  • Citizenship Requirement:
    The business owner(s) must be U.S. Citizen(s) or resident alien(s) with permanent resident status.

     
  • Occupancy Requirement:
    For funding projects that include real estate, the business must intend to occupy at least 51% of the 'Rentable Property' for existing structures or at least 60% of the 'Rentable Property' initially (and 80% over time) for new construction projects.  "Rentable Property" is the total square footage of all buildings or facilities used for business operations, which may include exterior space (except parking areas) that is actively used in Borrower's business operations.

     
  • Job Requirement:
    The small business must meet the job creation/retention requirement or qualify for a waiver.  The general requirement is one job per $65,000 in SBA funding for typical 504 loans, or one job per $100,000 for small manufacturers.  If a business does not meet the job creation/retention goals of the SBA, they may qualify for the program under one of the other goals of the program found here.
 
Ineligible Businesses
  • Non-profit businesses
  • Lending institutions
  • Insurance institutions
  • Gambling organizations
  • Businesses of a prurient nature
  • Businesses of restricted nature that exclude based on race, sex, or creed
  • Speculative businesses/development
  • Businesses located in a foreign country

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SBA Loan Fees and Pre-Payment Information
 
Loan Fees
  • Approximately 2.7% administrative fees financed in loan amount.
  • $2,500 for legal costs financed in loan amount.
  • Participating bank is charged a 0.5% senior lien holder fee.
  • Out-of-pocket costs are charged directly to the customer, i.e. title insurance for closing, lien searches, recording the mortgage, etc.

The majoirty of fees are collected at the time of loan funding and financed in the SBA 504 loan amount.  A $2,500 payment is collected at the time of loan approval and applied towards closling costs for the loan.  Ongoing servicing fees are reflected in the 'blended interest rates'.

Discounts offered to Veterans!  BLP offers the following discounts on SBA 504 loans that are made to businesses at least 51% owned by military veterans:

For loans under $1.5MM:  0.5% processing fee is waived (up to $7,500 savings)

For loans over $1.5MM:  0.25% processing fee is waived (up to $12,500 savings)

 

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SBA 504 Pre-Payment

During the first half of the SBA 504 loan term, a prepayment penalty exists.Therefore it is recommended that if the business wants to pay down some of its long term debt, that they prepay the bank portion of the financing package.  The SBA loan cannot be partially prepaid.  The prepayment penalty declines every six months based upon the remaining principal balance of the loan and disappears altogether a 20-year loan reaches 10 years and a 10-year SBA loan reaches five years.

Guidelines regarding prepaying SBA 504 loans are as follows:

  • Company needs to notify BLP, in writing, at minimum 45 days prior to the date they would like to prepay their SBA 504 loan.
  • An SBA loan can be prepaid any month, however it is recommended that if the borrower wishes to prepay their loan it is done on a six month interval to save on interest payments.
  • Prepayment penalties may apply. Prepayment penalty levels decline at six (6) month intervals and are eliminated once half of the term has passed.
  • The prepayment penalty is an amount equal to the outstanding principal balance plus accrued interest and the prepayment penalty.
  • Generally, the prepayment penalty equals 100% of the interest lost in the first year of the loan, 90% of lost interest in the second year, 80% the third year, etc.  After the tenth year, this becomes 0%.
  • Upon the funding of an SBA loan, the customer is provided a prepayment schedules which provides the dollar amount of the penalty for prepayments every sixth month until the penalty no longer applies.

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