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Financial Assistance - 504 Loan Program |
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The 504 Loan Program is usually the ideal financing vehicle for your business fixed asset expansion needs. |
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BACKGROUND |
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The 504 Loan Program is an economic development tool, the purpose of which is to: |
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1. |
Stimulate the economy within a community through the growth and expansion of small business. |
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Create jobs within the community. TOP |
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The SBA 504 Loan Program is administered by the St. Charles County Economic Development Council, a Certified Development Company ("CDC") directed by a volunteer board of community and business leaders. In addition to St. Charles County, the EDC also provides servicing of the 504 program to Lincoln, Franklin and Warren Counties. With the 504 loan, small businesses realize the following advantages: |
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Low Down Payment. |
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Long maturities (10 or 20 years). |
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Fixed Interest Rate (typically below market). TOP |
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QUALIFYING PROJECT COSTS |
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Qualified Project costs generally include expenditures to acquire, construct, convert or expand a facility. |
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Site improvements such a grading, streets, parking lots, utilities and landscaping qualify. |
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Professional fees directly attributable to the project such as surveying, engineering, appraisal and architectural may be included. |
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Investment and residential properties are ineligible. TOP |
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ELIGIBILITY REQUIREMENTS |
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Almost any type of business is eligible: manufacturer, distributor, retailer, etc. Start-ups as well as existing businesses are eligible. Businesses must be concerned with each of the following requirements to apply for a 504 loan: |
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If purchasing an existing building, the small business must occupy at least 51%. If constructing a new building, the business must occupy at least 60%. When reasonable projections of growth indicate the SBC will need if the owner(s) of the property and the owner(s) of the operating small business are different, each 20% or more owner of each entity must guaranty the loan. |
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Project must, according to SBA guidelines, promote economic development. Generally, this entails the following: Creation of jobs, being located in a distressed area, Rural Development, Expansion of Exports, Minority Business Development, Enhance Economic Competition, or business restructuring due to Federally mandated policies affecting the environment or Federal Budget cutbacks. To be eligible under job/creation retention, then for every $50,000 that the CDC lends, reasonable projections must show that one (full-time equivalent) job will be created or retained over the next two years. |
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Business must be for-profit and must average less than $2 million in profits after taxes and have less than $6 million in tangible net worth. |
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There is no project maximum size under the 504 loan since there is no limit on the bank loan. (The maximum 504 loan is $1.5 Million, $2 Million for public policy loans, $4 Million for Manufacturing loans.) (The minimum project size is $125,000.) TOP |
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HOW THE PROGRAM WORKS |
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Each 504 Loan package has three elements: |
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The borrower provides a minimum of 10% of the project total. (Start-up companies and special use facilities will require 15-20%). |
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The Certified Development Company lends a maximum of 40% of the Project total (up to $1.5 Million). |
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A private lender, usually a bank, lends the balance of the project's total cost. (typically 50%) |
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The interest rate on the CDC's loan is fixed and is generally a little above the rate of 5 year or 10 year Treasury Bonds. The maturity is 10 or 20 years. The interest rate on the bank loan is negotiated by the borrower and is, typically, floating. |
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The combination of fixed and floating interest rates provide an effective hedge against rate fluctuation. If rates increase, the borrower is locked in with the relatively low interest rate on 40% SBA financing. If rates decrease, the borrower floats downward with the bank's 50% loan. |
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This structure...50/40/10... can be altered in many ways to meet the needs of borrower or lender. There is no maximum project size under the 504, since a bank could lend, and/or the borrower inject, in excess of the percentages listed above. The Certified Development Company can provide complete information on alternatives. TOP |
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TIME FRAME |
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From the time the CDC receives the completed application, it takes approximately 6-8 weeks to receive a commitment from the SBA, known as the Authorization and Debenture Guaranty. The SBA will allow expenses incurred as far back as 9 months from the date an application is approved by SBA. |
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Please also NOTE that the CDC provides its financing when the project is completed. The bank (or first mortgage lender) provides financing during the interim period, this would be the bank's 50% and the SBA's 40%. CDC disbursements occur every month for the 20-year loans and every other month for the equipment only 10-year loans. TOP |
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FEES: |
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Application fee. At the time of application, a $1,250.00 deposit is required. If the borrower so desires, this deposit can be used to pay the CDC's out-of-pocket expenses, incurred on behalf of an application (title fees, recording, etc.). If the loan is not approved, the $1,250.00 is returned to the applicant. If the applicant withdraws, at any point, after making application, the entire application fee is forfeited. Following a successful funding, any undisbursed balance is returned to the borrower. |
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Processing fees. The processing fees compensate each service provider in the 504 process, which includes the CDC, SBA, underwriters and fiscal agent. Processing fees are one-time only fees, and are equal to approximately 2.75% of the 504 loan. Processing fees, are added to the amount borrowed. |
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CORPORATION VERSUS INDIVIDUALS, ETC., AS THE BORROWERS: |
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For tax purposes, it is sometimes desirable to have the business owner(s), a limited liability company, a general partnership, a limited partnership, or a revocable trust, purchase the assets and lease them to the business. This is acceptable under the 504 program. TOP |
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COLLATERAL |
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Personal guarantees and/or corporate guarantees are required. Additional collateral is sometimes requested and may include personal assets and life insurance. TOP |
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ASSUMPTION |
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If the 504 assets are sold, or the original borrowing entity is sold or dissolved, the 504 loan can be assumed, if the assuming party meets all credit and eligibility standards of the CDC and the SBA. (A move to prepayment - substitution of collateral is another alternative available for the borrower). An assumption fee of 1% of the outstanding balance of the loan is charged to the Assuming Party. TOP |
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Economic Development Center
5988 Mid Rivers Mall Dr. Suite 100, St. Charles, MO 63304
Phone: 636.441.6880, Toll Free: (877) 441-6880, Fax: 636.441.6881
E-mail: info@edcscc.com
Advanced Technology Center
118 N. Second Street St. Charles, MO 63301
Phone: 636.410.0300, Fax: 636.940.0408
E-mail: info@edcscc.com |
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Site Concept and Design ©2008 / Maintenance and Hosting provided by jWeb. |
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| 504 Loan Rates (20 Year Fixed) |
| May 2007 - 6.22% |
| June 2007 - 6.6% |
| July 2007 - 6.7% |
| August 2007 - 6.75% |
| Sept. 2007 - 6.47% |
| Oct. 2007 - 6.48% |
| Nov. 2007 - 6.42% |
| Dec. 2007 - 6.2% |
| Jan. 2008 - 6.08% |
| Feb. 2008 - 6.07% |
| March 2008 - 6.4% |
| April 2008 - 6.28% |
| May 2008 - 6.4% |
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