Sample Project

Sample Project

What a typical 504 project looks like
ABC Corporation has been leasing a 16,000-square-foot building for five years. A 25,000-square-foot building on the same block has just gone on the market for $3,000,000. ABC’s owner, Rafael Martinez, wants to make an offer on the building, but he doesn’t know where he can get the 25% ($750,000) down payment that would be required with conventional financing. Kelly Reardon, his long-time lender, has the solution: an SBA 504 loan.

Here’s how it works: The bank finances a $1,500,000 first mortgage for 50% of the cost, and California Statewide finances a $1,200,000 second mortgage SBA 504 for 40% of cost. The good news? Mr. Martinez’s down payment is only $300,000. Now he can conserve his working capital and expand his business.

  • Loan amounts and down payment vary with project type and credit quality. 504 loan limit is $5.0 million per borrower for non-manufacturing companies ($5.5 million for manufacturers; limit for manufacturers is on a per project basis); projects of $14.0+ million possible, depending on the bank.”
  • Bank rates vary with lender. 504 rate is set at funding (approximately 60-90 days after escrow closing, or after completion of improvements, if applicable) at the 10-year U.S. Treasury note plus market spread and ongoing SBA fees.
  • Bank loan has minimum 10-year term and 15- to 30-year amortization. The 504 loan is a 20-year fully amortizing loan and payments are estimated.
  • Both loans use the same appraisal and environmental due diligence report.
  • Loan fees for the bank range from up to 1.5% of the bank's loan (first mortgage). 504 fees (second mortgage) are approximately 2.65% of the loan amount as regulated by the statute, plus a $2,000 attorney closing fee which are financed with the loan.
  • The small business and its affiliates combined must have a net worth of less than $15 million and an average after-tax profit for the last two years of less than $5 million.
  • Small business must meet conventional credit underwriting criteria.
  • California Statewide CDC can pre-qualify customers within 24-48 hours.