Frequently Asked Questions


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Email Carolyn Engel at Carolyn@blp504.org

General 

 


Q: What is a Certified Development Company (CDC)?

AA corporation that processes U.S. Small Business Administration (SBA) 504 loans in partnership with Bank, state and/or private money creating a financial assistance package for businesses with funding needs for real estate and equipment.  The SBA takes a second lien on the property or equipment financed at a maximum participation level of 40% of the total funding needs.  SBA certifies corporations to be CDC's and requires they process SBA 504 loans.

 


Q: How Do I apply for a Small Business Administration (SBA) 504 loan?

A: Applying for an SBA 504 loan is comparable to applying for any commercial loan but with many more benefits. Begin by contacting one of our BLP staff members, and we will come to your place of business to further explain the program details. We provide a checklist of what is needed to simplify the process.  We will work with your accountant and lender, and do all of the analysis, packaging, and communication with the SBA for you. Our goal is to simplify the process as much as possible for our borrowers.

 


Q: How do I determine if I’m eligible?
A: To be eligible, each business must operate as a "for profit" and fall within the size standards of small businesses which are set by the SBA.  Under the 504 Program, the business qualifies as small if it does not have a tangible net worth more than $15 million and does not have an average net income more than $5 million after federal taxes for the preceding two years.  However, 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.  Loans made to the owner-occupied real estate.  For a quick no cost eligibility screening, please contact a BLP staff member.  (Read more on Eligibility criteria...)

 


Q: Do you finance startup businesses?
A: Yes, startup companies require a full business plan along with detailed information behind their economic assumptions, including a monthly cash flow projection.  The financing structure also changes in that SBA requires an additional 5% cash equity injection from the borrower reducing SBA's participation level in that project.

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Q: Are there job creation requirements?
A: Typically job creation or retention is a need with one job needing to be created or retained for every $65,000 being borrowed from the SBA ($100,000 per job for small manufacturers); however, this requirement can be waived if another goal set forth by the SBA is met. (Read more on the alternative eligibility goals...)

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Q: Can I refinance an existing loan?
A: Yes, but on a limited basis.  SBA currently allows for refinancing only under the following regulation:
  1. Refinancing is done as part of an expansion project.  For example, if a business is adding on to its facility of activities, some of the existing mortgages can be refinanced as part of that financing package.

 


Q: Do you offer financing options other than the SBA 504 loan program?
A: Yes, there are some state and community loan programs that our partners and we offer. We’ll recommend the program that is best suited your needs.

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Q: When can I prepay without penalty?
A: There are declining prepayment penalties that apply to SBA 504 loans. If you wish to prepay, the business needs to notify BLP, in writing, 45 days before the date on which the company wants to pay off the loan. The loan cannot be partially prepaid.  The prepayment penalties are in place for half of the loan life.  For example, a 20-year loan will have advance sanctions for ten years, and a ten-year loan has penalties for five years. (Read more on the prepayment penalties that apply...)

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Q: Can my down payment be other than cash?
A: Yes, the down payment can also be in the form of the value of previously acquired land (which can include building(s), structures, and other site improvements that will be part of the project property).  This value would need to be supported by an appraisal submitted with the loan application.  Additionally, in certain situations the down payment can be borrowed.   

 


Q: Which bank(s) can you partner with?
A: We can partner up with any financial institution of your choice!

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Q: What is your application review process?
A: Applications are considered at weekly loan committee meetings. If approved, following investment committee meeting, the application will be taken into consideration by the executive committee in less than 24 hours. If approved, the final step is to submit the application to SBA for final consideration.

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SBA 504

February 2018

20-Year Fixed Rate:

4.940%

10-Year Fixed Rate:

4.657%

 

 

  Borrower Benefits
  • Lower Down Payments Required
    The borrower may provide a cash down payment as low as 10% of the total funding needs, allowing them to save their cash for other business needs.

     
  • Fixed Rates on SBA 504 Loan
    The borrowers do not have the risk of an increase in the interest rate on the SBA loan making long-term planning for the business easier because borrowers know the amount of their mortgage payments for the next 20 years.
     
  • Long Term
    SBA 504 loans are made for 10 or 20 year terms. Longer terms results in lower monthly payments for the borrower without the concern of balloon payments due prior to the loan maturity.

     
  • Low Interest Rates
    The long-term, competitive interest rate results in savings over the life of the loan.

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 Eligible Use of Funds

  • Land Purchases
  • Site Improvements
  • Existing building purchases, expansions or renovations
  • New construction
  • Equipment purchase and installation
  • Projected 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

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Eligible Businesses
  • Must be a for-profit business
     
  • 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 Requirements and Waivers:
    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

  • Approximately 3.2% administrative fees are financed in the SBA loan amount.
  • $2,500 for legal fees for the loan closing are 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.

‚ÄčThe majority of the fees are collected at the time of loan funding and financed in the SBA 504 loan amount.  A $2,500 fee is collected at the time of loan approval and applied towards closing costs.  Ongoing servicing fees are reflected in the 'blended interest rates'.

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

Loans less than $1.5MM:  0.5% of processing fee is waived (up to $7,500 savings)

Loans more than $1.5MM:  0.25% of processing fee is waived (up to $12,500 savings)

 

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SBA 504 Pre-Payment Information

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 schedule which provides the dollar amount of the penalty for prepayments every sixth month until the penalty no longer applies.

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