| SBA Program |
| Why SBA? | : | What are the benefits? | : | Who qualify? | : | How does it work? |
Advantages of SBA 504 over Conventional Financing
Low downpayment. Just 10%. Lets you preserve your cash for your working capital. Most banks will lend only 60-70% of the appraised value of the project leaving you to sink in 30-40% plus the cost of renovations plus the soft costs.
Fixed rate on the SBA 504 portion. You don't have to worry about the prime lending rate going up. You can plan because you know the amount of your mortgage payments for the next 20 years.
Long term. CDC 504 loans are for 10 or 20 years. Because the CDC is in second lien position, the bank or other lender doing the 50% first lien loan are willing to lend at a longer term. Longer terms make your monthly payments lower.
Low interest rate. Even with all the fees and closing costs included in the rate, it is still a low rate for a subordinate mortgage loan, particularly for small business. The blended rate as between the bank portion and the Certified Lender's 504 portion makes the project affordable for you.
For the banker wishing to participate as the 50% lender, you get CRA credits; you lend at a lower loan to value ratio; you keep a growing customer happy; you have lower risk because the SBA 504 loan is in second position behind you. The community gets the advantage of keeping or attracting a healthy, growing small business that will be creating jobs and doing other wonderful things in the community.
Rates and Terms
The rate on the SBA 504 portion is set when the CDC sells the bond to fund your loan. The rate is then fixed for the loan term. 504 bonds are amortized securities. For comparable rates, look at treasury rates. The SBA 504 rates can be found in the About DCFC Section of this web site. The effective rate (APR) will include program fees and a loan loss subsidy.
Loans are ten or twenty years; self liquidating. In order for the CDC to do a 20-year loan, the lender doing the 50% permanent first mortgage must have at least a ten year term. That lender can have a longer payout. Typically, lenders will lend with a 15-20 year term and 20-year payout. For a CDC to do a ten-year loan, the 50% lender must have a term of at least 7 years. Many lenders will match CDC's ten year term.