How the Program Works

Under the 504 program, qualifying businesses can receive second mortgage financing for up to 40 percent of a project's cost or a maximum loan amount of $5,000,000. Small manufacturers (primary NAICS code in Section 31, 32 and 33 and all production facilities located in the US) are now eligible to receive a maximum 504 loan of $5,500,000.

A traditional loan package features 40 percent financing through the SBA 504 program, 50 percent financing through a private lender, and an investment of 10 percent from the small business itself. [The small business investment may increase to 15-20 percent for start-ups, single purpose real estate or higher risk industries]. This blended loan featuring joint private sector financing and SBA 504 financing offers several advantages. First, up to 40 percent of the total loan is fixed at a rate typically near or below market rate for a term of 10 or 20 years. Additionally, MADCO takes a second mortgage position. Therefore, private lenders are often more willing to provide financing, since their 50 percent investment is secured by 100 percent of the assets. Through the SBA 504 program, the borrower is offered a long term, fixed rate and private lenders are offered greater collateral for their investment/risk.

SBA 504 loans may be used to finance the cost of fixed assets such as land, buildings, new construction, machinery and equipment, renovations, leasehold improvements and associated soft costs such as title insurance, legal, appraisal, environmental and bridge loan fees. SBA 504 loan closing costs may be financed.

SAMPLE PROJECT

Note: the seller can provide the 50 percent permanent financing but, under current regulations, the seller must be co-equal to or subordinate to the SBA 504 loan. The 50 percent can come from a variety of non federal sources such as banks, nonbank institutions, government agencies.