are the Down Payment Requirements?
Typically, the small business contributes 10% of the project costs.
If the business is a startup (when Management has less than 2 years
of operating experience), the down payment increases to 15%. If the
loan will finance a single use property, the down payment increases
to 15%. If the project is for both a single use property and a start-up
business, the down payment increases to 20%.
(3) What Businesses are eligible?
The applicant must be a for-profit business whose business net worth
is less than $8.5 million and whose after tax income is $3 million
or less, on average, for the last two years (size standards as
(4) What projects are eligible and what are the costs?
SBA 504 financing is used to acquire, construct, renovate or expand
an owner occupied facility. It can also be used to acquire
major machinery and equipment with a useful life of at least 10 years.
Through the recent American Recovery and Reinvestment Act, up to
1/3 of project funds can now be used for eligible debt refinancing
(fixed asset related debt only).
In addition to the acquisition and construction costs, the "soft
costs" (appraisals, environmental, construction interest, closing
costs, etc.) can also be financed in the 504 loan. This allows the
business to preserve working capital.
(5) What are the occupancy requirements?
Occupancy After 10
(6) What is the project size range?
Project sizes typically range from $200,000 to $12,000,000 with the
504 loan size ranging from $80,000 to $1,500,000 (SBA portion up
to $2,000,000 when public policy goals are achieved, and up to
$4,000,000 for manufacturers meeting SBA defined NAICS codes, and
$4,000,000 for projects achieving certain energy goals). The first
mortgage loan can exceed 50% of the project total, which enables
larger companies to take advantage of the benefits of the 504 for
certain projects exceeding $10million.
(7) What is the Banker's Role?
The first mortgage lender processes its loan as it would any conventional
loan request. Southern Development Council and the bank can work
together to collect documents from the borrower, and Southern Development
Council can share its credit underwriting with the bank. Once approved,
the bank will utilize its own loan documents to close their loan.
Appraisals and environmental reports should be ordered naming all
parties (the bank, Southern Development Council, and the SBA) with
copies provided to Southern Development Council as received.
Generally, the bank provides "interim" or "bridge" financing
while Southern Development Council's 504 loan is a permanent take-out
loan. Thus, the bank would provide the full 90% financing up front
during the construction, renovation, or closing period based on the
504 commitment to take out the applicable portion of the interim
financing once the business occupies the property.
To close the 504 loan, the bank will be asked to provide copies of
its loan documents, provide copies of its draw schedules (for construction
or renovation projects), certify that there has been no adverse change
in the borrower's financial condition, and agree to various other
provisions such as to provide 60 days advance written notice of default
prior to foreclosure proceedings. The participating lender pays a
one time participation fee of 50 basis points on their participation
amount. Since your loan is just that, your loan, there are
no ongoing reporting or guarantee fee requirements once the 504 portion
At Southern Development Council, we strive to be the 504 expert and
we help ensure that all SBA requirements are met so our lending partners
can focus on the bank portion of the loan without having to memorize
all of SBA 504 Loan intricacies.
(8) What are the advantages of
an SBA 504 Loan?
Advantages for commercial lenders
Reduce risk on projects - resulting in 50% loan-to-value-ratio
Fixed or variable rate option on bank loan
Meets economic development and community reinvestment goals
Blending rates allows you to compete for strong projects with
other lenders and keeps the bank competitive by offering attractive
financing for its clients
Low down payment also allows you to compete for strong projects
with other lenders
Reduces exposure to customer and/or leaves “room” for
other loan products
Better cash flow coverage
Bank loan is not guaranteed, therefore not subject to SBA reporting
or ongoing fees
Advantages for small business
Low down payment - helps conserve valuable operating capital
The 504 has a below market fixed rate - avoids future rate fluctuations,
keeps costs of loan low
Long-term - brings debt service in line with cash flow generated
(9) What do I do if I think a project
might be a good 504 candidate?
If a project appears to be a good fit for the 504
program, go ahead and call one of our Business Development Officers. With
only a few short questions, they can usually determine if a project
is a good fit for the program. Once determined that a 504 would
work, a short list of items will be requested in order to prepare
the loan application. Items needed mirror the information you
have or will be requesting in order to underwrite your first mortgage
loan. Again, we can work together to collect documents from
the borrower, and Southern Development Council can share its credit
underwriting with the bank. Working together we can ensure
the process remains seamless for the borrower and efforts aren’t
An application is available for download at our website, www.sdcinc.org.
Primary items needed for a formal application will normally include:
A description of the project with an estimate
of the project cost
If an existing business, completed Federal Income
Tax returns, and if available CPA prepared financial statements,
and Interim Financial Statements less than 90 days old
If a start up business, pro forma income statements
for the first two years with general assumptions
Current personal financial statements and complete
Federal Tax Returns for all officers and owners with 20% or more
ownership in the company
(10) Why should I use
Southern Development Council?
Southern Development Council will work with you and
the borrower to make the application process as easy as possible.
If your customer meets prequalification requirements, Southern Development
Council will prepare all the necessary paperwork to obtain an SBA
We are a fully autonomous Alabama company celebrating our 27th year
of service and are proud to have brought to reality over One Billion
Dollars in projects and over 18,000 jobs to our state. Southern
Development Council was the first statewide CDC serving Alabama. Our
Business Development Officers have the experience necessary to deliver
prompt, professional service every time you call. We have
a dedicated support staff that includes loan assistants, financial
analysts, and credit specialists all waiting to support you and your
Contact us with any questions at 1-800-499-3034 ext 105,