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SBA 504 LEASE REQUIREMENTS

August 6, 2019
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When SBA finances a property to be leased to the operating business, specific requirements apply to the lease as follows:

Required:

  • 100% of the property must be leased to operating business(es) that is/are creating jobs and guaranteeing the SBA loan.
  • The lease term, or its term with options to renew exercisable solely by the operating business, must match the SBA loan term.
  • The lease must be subordinate to the SBA mortgage.
  • An assignment of all the rents paid under the lease is required as collateral.

occupancy:

  • Existing properties can sublease up to 49% of the rentable space.
  • Properties that are newly constructed or significantly renovated properties can permanently sublease 20% of the rentable space and temporarily sublease another 20% with the intention of using some of that temporarily leased 20% space within three years and all of it within ten years.

lease payments:

The rent or lease payments cannot exceed the amount necessary to make the loan payments and an additional amount to cover the direct expenses of holding the property such as routine maintenance, insurance and property taxes.

“The amount of rent to be paid by the Lessee shall be equal to the sum of (a) debt service (principal interest and other charges) due under the Landlord’s 504 note to Racine County Economic Development Corporation/ United States Small Business Administration; (b) debt service (principal, interest and other charges) due under Landlord’s note to __ Bank; (c) any renewals, extensions, or refinancing there of (but not any increases in the principal amounts) outstanding at that time and (d) maintenance fees on the property including but not limited to real estate taxes and insurance.”

Rentable Space:

Total square footage of all buildings used for business operations excluding vertical penetrations (stairways, elevators, and mechanical areas), and including common areas (lobbies, passageways, vestibules, and bathrooms). Rentable property may also include exterior space (except parking areas) that is actively used in Borrower’s business operations including outdoor storage yards for general contractors, trucking companies, and moving and storage companies, boat slips and docks for marinas.

* Requirements are subject to changes by SBA. For most recent guidelines, please contact BLP.

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