|  (A
private, non-profit, SBA-regulated 504 Certified Development Corporation)
SBA 504 Loan Program in Northeastern Pennsylvania
Purpose
SBA’s 504 program provides businesses with long-term, below-market,
fixed-rate financing to purchase real estate, build, expand, renovate,
or make leasehold improvements, to buildings, or purchase machinery
and equipment.
This program requires only a small cash down-payment thereby preserving
the business’s working capital. One of the objectives of the
504 program is that by financing a project, new jobs will be created
or existing jobs which otherwise might be lost will be retained.
Eligible Uses
Proceeds of the financing package may be used for the purchase of
land, purchase or construction (or renovation) of a building, modernization,
renovation, restoration, including leasehold improvements, purchase
of machinery and equipment, and related soft costs such as construction
period interest, professional fees for accountants, engineers, appraisers,
etc. The SBA 504 program may NOT be used for working capital, refinancing
of existing debt, or to acquire real estate for purely investment
purposes.
Eligible Applicants
In order to be eligible for 504 financing a business must meet the
following criteria: It’s net worth must not exceed $6 million
and its average net income after taxes for the preceding two years
must not exceed $2 million. It must be a for-profit corporation,
partnership, or proprietorship.
Loan Parameters
The maximum amount of 504 financing which DelVal can provide is
$750,000. (Up to $1 million in some cases) and the minimum is $50,000.
There are no restrictions on the total project size which may be
up to $4-5 million. Machinery and Equipment may be financed with
(10) year 504 debentures and real estate with twenty (20) year debentures.
A minimum of seven (7) year financing is required from the commercial
lender for machinery and equipment and ten (10) years for real estate.
DelVal provides 504 financing via a “50-40-10” structure
where a commercial bank provides financing for 50% of a project
with a first mortgage, SBA/DelVal provides a 40% second mortgage,
and the small business concern (“SBC”) provides the remaining
10% usually as cash or equity.
The interest rate on the 504 financing is fixed based on prevailing
market rates for five (5) and ten (10) year U.S. Treasury issues
(for ten and twenty year 504 financing respectively), plus a spread
over the Treasury rate of approximately 130 basis points (1.3%).
The interest on the 40% financing averages about 7-8% a year. The
interest on the 50% financing provided by the bank or commercial
lender is at a negotiated rate based on market conditions.
DelVal’s 504 loan must be reasonably secured so as to insure
repayment. Collateral is usually limited to a second lien on the
fixed assets being financed. The commercial lender has the security
of a first lien on the assets being financed.
Personal guarantees of the principals owning 20% or more of the
SBC are normally required for 504 financing. 504 financing is to
be used for the permanent take-out of 40% of the project costs after
construction is completed. It cannot be used for construction lending.
An interim loan from a regulated lending institution is required
to undertake construction.
504 loan repayment begins on the first day of the month following
funding. 504 loans are self amortizing with level monthly repayments.
Loan Conditions
It is intended that 1 job be created or retained for every $35,000
of 504 debenture funds issued.
Application Process
If interested a bank or small business should: Prepare a description
of the proposed project and an estimate of the total project costs
and review the company financial statements for the past three years,
and the most recent interim statement available. CAN DO can introduce
your project to Del-Val or you can contact John Sower directly at
1-800-453-0267.
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