Featuring Jim Hammersley, Director
Office of Financial Assistance Loan Programs
U.S. Small Business Administration
SBA's Certified Development Company (504) loan program provides long-term, fixed-rate loans for small business owners who want to expand their businesses. Learn more about this loan program.

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Transcript:

SBA’s Long-term Fixed Rate Loan Program

Ron Johnson: Somewhere down the road most successful small businesses need money to expand by purchasing, leasing or building. Hi, I’m Ron Johnson with the U.S. Small Business Administration, your small business resource. Can SBA and its partners help you when you need cash to grow your business? We’ll find out how in this session.
With me today to discuss SBA’s certified development company 504 loan program is Jim Hammersley. He’s director of SBA’s loan programs.

Ron: Thank you for joining us today, Jim.

Jim: It’s good to be here, Ron.

Ron: Jim, tell us what are certified development companies 504 loan programs?

Jim: The 504 program is designed to get long-term fixed rate financing in the hands of small business owners. It’s essentially a second mortgage-type product for commercial real estate.

Ron: What are SBA’s 504 certified development companies?

Jim: The certified development companies are the organization that facilitates the 504 program. Essentially they’re non-profit, local community-based organizations whose goal is local economic development. They will work with the small business owner and also work with the financial institution that’s making the first mortgage to put the whole package together.

Ron: Jim, can you tell us what types of businesses are eligible for this program?

Jim: Basically, any small business that you can think of is going to be eligible. It has to be a for-profit business and there are certain restrictions related to gambling and other areas but pretty much what most people think of as a small business is going to be eligible.

Ron: What can the 504 funds be used for?

Jim: The 504 funds are somewhat limited in their use and they are limited to land, buildings, equipment and heavy assets. You cannot use a 504 loan for a working capital or inventory purchase. It’s primarily designed, as I said, to get fixed rate money in the hands of small businesses that are financing owner-occupied real estate.

Ron: Can you explain some of the features of the 504 loan?

Jim: Sure. It’s important to note that there are really three aspects to a project. There’s a first mortgage that is made by a private financing institution, usually a local bank. There’s a second mortgage for 40% of the project, typically, that is made by the certified development company and guaranteed by SBA. And then the third portion is a 10% down payment that’s provided by the borrower.
We do require that the borrower put down the 10% down payment to make sure that they have a stake in the business. The second mortgage portion, the 40%, has a 100% guarantee from the US Government on it. So that piece is sold by the development companies to investors to get that fixed rate. The maximum debenture is typically about 1.5 million although in some cases the debenture can be as high as 4 million if the borrower is a manufacturer.

Ron: Can you tell us what are the terms, the interest, and fees?

Jim: In the 504 program, there are two basic maturities, either 10 years or 20 years. And the loans amortize over that period of time. There are some fees involves. There’s an upfront fee that is paid by the borrower at the time that the application, I’m sorry, at the time the loan is funded and there is an ongoing fee that is paid a little bit each month. Typically, it’s just a couple of basis points right now.

Ron: If your small business is ready to expand, check out SBA’s financing information and other advice at www.sba.gov. SBA also has district offices serving every state and U.S. territory.
Counseling and training services are provided by SBA’s resource partners such as SCORE with more than 10,000 counselors nationwide, over 1,000 small business development centers and more than 90 women’s business centers. SBA – helping more businesses start, grow, and succeed.

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