Ron Reuss, President of GulfCoast Business Finance, has sent out this summary of SBA 504 loan related items that are part of the stimulus package that was just signed into law. SBA 504 allows businesses to buy building and or equipment. Go here for more information on SBA 504, or read what we have on the program at the end of Ron's article.
The following SBA 504-related items were contained in the Stimulus Bill.
Appropriation of $100 million for loan subsidy & loan modification costs for 504 loans to cover elimination of SBA 504 fees through September 2010, provided appropriated funds continue to offset such fees; Temporary elimination of bank participation fee (currently .5%) and CDC processing fee (currently 1.5%);
The SBA 504 requirement of projected employment impact will change from "one job projected to be created per $50,000" to "one job projected to be created for every $65,000 in SBA funds" If the project meets with SBA's public policy or community development goals, this job creation requirement does not apply.
A SBA Secondary Market guarantee authority of up to $3.0 billion has been established to facilitate the sale of 504 first mortgage pools. (These may be existing pools of loans, or new loans that may be pooled after date of enactment.)
Refinancing existing debt (in an amount not to exceed 50% of the projected cost of the project financed), if;
1. the new loan involves business expansion
2. it is collateralized by fixed assets
3. the existing debt was incurred for benefit of small business
4. proceeds are used to acquire land, to construct or expand building or to purchase equipment
5. borrower is current on all payments of existing debt for one year
6. new financing will provide better terms or interest rate
7. new financing will be used only for refinancing existing debt, or for costs related to project being financed
For the SBA 7(a) loan program, loan fees were eliminated and the SBA will now guarantee the 7(a) lender up to 90% of the outstanding loan. No provisions were offered in the bill that increase the amount of SBA 504 loan nor the amount of the 7(a) loan guarantee of $1.5 million.
NOW is the best time for a lending institution to consider partnering with the SBA 504 loan program to lessen its risk and to lower its loan exposure on real estate and equipment financing.
We will continue to provide you with any and all updates to this bill as they develop.
More about SBA 504:
The Small Business Administration (SBA) 504 Certified Development Company Loan Program was created in 1980 to promote small business expansion. The program provides long-term, low down payment, competitively priced capital for healthy, growing businesses that have a high probability of enhancing local employment in an area. A CDC, typically a non-profit corporation, receives designation from the SBA to administer this economic development program.
Typically, a 504 project includes a loan secured by a first lien from a private-sector lender that finances up to 50% of an eligible project’s cost, a secured second lien from a CDC (backed by a 100% guaranteed debenture) that funds up to 40% of the project’s cost and the small business is required to inject at least 10% of the eligible costs. (New and limited purpose businesses may be required to inject additional equity.)
Eligibility
- Be an operating business
- Be organized for profit
- Be located within the United States
- Be a small business according to SBA standards
- Meet an economic development objective of the program
- Demonstrated the need for financing :
2. Limited Liquid Resources Test
Projects Financed:
- Land acquisition
- Building acquisition and improvements
- New Construction
- Machinery and Equipment purchases
- Professional and interim loan fees
Source: http://unfsbdc.blogspot.com/2009/02/sba-loans-and-stimulus-packagesba-504.html
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