Issue

504 Loan Program

7(a) Loan Program

Purpose of loan

Fixed assets such as owner-occupied Any business purpose real estate and heavy equipment; no refinancing or working capital

Any business purpose.

Goal of program

Job creation and retention; economic development

Capital access - access to capital for businesses that would not qualify elsewhere.

Rates and Terms

Bank loan: Variable or fixed; must be at least half as long as term of CDC loan

CDC loan: Fixed rate, 10- or 20-year maturity

Variable or fixed; term of up to 25 years depending on use of proceeds.

Maximum amounts

Bank loan size is unlimited; generally used for projects of $3.75 million to $5 million;
$10 million for manufacturing

$2.0 million loan with a $1.5 million guaranteed amount

Fees

Bank loan: Application fee and construction loan fee (if applicable) vary by bank; one-time SBA participation fee of 50 basis points paid by bank

CDC loan: Upfront fees of approximately 2.75 percent which are financed

Upfront guarantee fee of approximately 3% on guaranteed portion;
ongoing fee of 54.5 basis points paid by lender.

Bank lien position

Bank has exclusive first lien

Bank holds the first lien; with typical 75% guarantee, the lender receives 75% of any proceeds from a liquidation and SBA receives 25%.

Loan-to-Value

Bank loan: Typically 50%.

CDC loan: Maximum of 40%.

Maximum of 90%.

Qualification

Business net worth not to exceed $7 million; average net profit for 2 consecutive years not to exceed $2.5 million after taxes.

Depending on the type of business, annual sales of less than $5 million or manufacturing firm of less than 500 employees.

Prepayment penalties

CDC loan: Penalty is 100% of one year's interest in the first year, declining to zero at the midpoint of the loan.

Low; no penalty for up to 25% prepayment in first 3 years.