How can 504 funds be used?
How are 504 projects structured?
What are the terms of the 504 loan?
What are the terms of the conventional (bank) loan?
Is my company too big or too successful for a SBA 504 loan?
How do I apply for a 504 loan?
What if I have other questions regarding 504 financing?

How can 504 funds be used?

504 loans may be used for:

• Land or building acquisition
• Building construction or remodeling
• Acquisition of fixtures and heavy machinery (see below for additional information on machinery financing)
• Transaction costs such as appraisal, title and escrow, and 504 fees, etc. can be included in the financing, provided they are supported by the appraised value of the project.

The qualifying business must become the primary occupant of the property financed. Companies buying existing buildings must occupy at least 51% of the net rentable space, and companies constructing new buildings must occupy at least 60%. Proceeds cannot be used for working capital or costs unrelated to the project.
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How are 504 projects structured?

SBA 504 loans are generally financed like this:

50% = Bank -- 1st Mortgage
40% = 504 Loan -- 2nd Mortgage
10% = Owner Cash
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100%

In 504 projects, a conventional loan usually provides 50% of the project. This may be a bank or other institutional lender. Bay Area Development Company typically provides up to 40% of the project cost (the 504 loan) and the buyer typically provides a 10% down payment. 504 loans make up a maximum of 40% of a project, or $2,000,000 for most projects, and up to $4,000,000 for manufacturing companies. Projects from $500,000 to as much as $20 million are viable 504 candidates. 504 loans are take-out or permanent financing. As a result, the bank providing the 1st mortgage loan also provides interim financing for projects including remodeling or construction, or a short term bridge loan to facilitate a quick close for building purchase projects. The 504 loan provides funds to pay off the interim or construction financing.
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What are the terms of a 504 loan?

• SBA 504 real estate loans are twenty-year, fixed-rate, fully amortizing loans. We also offer 504 loans with ten-year, fully-amortized fixed-rate loans for projects involving the acquisition of heavy machinery and equipment, without a real estate purchase.
• The 504 interest rate is fixed over the term of the loan at the time of 504 loan funding. The rates are market-determined and typically are priced at the 10-year treasury rate plus a spread of 1.75% to 2.25% (please see the Current Rate page for the current rate).
• 504 fees are 2.15% of the 504 loan plus a $2,000 loan closing fee. The 504 fees are financed with the overall project.
• 504 loans are fully amortized and have no balloon payments or call provisions. 504 loans have a formula prepayment penalty for the first half of the loan term.

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What are the terms of the conventional (bank) loan?

The bank loan carries market rates and fees and may be structured as a fixed or variable rate loan. The bank also pays a fee guaranty or subordination fee of ½% of their loan to the SBA, which is typically passed on to the borrower. Although a complete funding proposal is prepared by Bay Area Development Company, it is the client who negotiates the bank rate and terms. The bank loan cannot have call provisions or balloon payments in the first 10 years of the loan.
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Is my company too big or too successful for a SBA 504 loan?

504 loans are targeted to successful growing companies - the more successful the better. In fact, almost all privately held for-profit companies are eligible small business for SBA financing. Applicant firms must have a proven ability to repay the financing, but well-structured new ventures may also qualify.
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How do I apply for a 504 loan?

Bay Area Development Company can pre-qualify your company for a 504 loan in 24 to 48 hours at no cost to you. The information needed to be pre-qualified is minimal and there are no forms to complete. Simply contact us to discuss your project. We can also pre-qualify your company for a project amount prior to your identification of the property you want to purchase. Visit the My 504 page and generate an instant quote for your project to see how 504 financing can work for your company.
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What if I have other questions regarding 504 financing?

We are here to serve you. If you have additional questions about 504 or your specific project, please call (888) 504-0504 or email us. One of our loan officers will be happy to assist you.