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- Owners must be US citizens or registered aliens with green card.
- Owners can not be convicted felons currently on probation
- Any one who owns 20% or more of the operating company must personally guarantee(unsecured general guarantee)
- Liquid assets of the principals are taken into account in determining eligibility. Too much liquid assets owned by a principal could disqualify the loan because it will be deemed that the project could be financed by the principal without SBA 504 assistance.
- Legal entity - corporation, partnership, sole proprietor, limited liability company
- Located in the United States
- Net worth under $8.5 million and net profits under $3 million
- Participation by another lender who finances up to 50% of project costs
- Economic development goals must be achieved through the project financing
- Owner-user of the project being financed must occupy at least 51% of the property for an existing building or 60% of a newly constructed building. Two or more unrelated small businesses can receive an SBA 504 loan if they combine to meet occupancy requirements
The CDC takes a subordinate (second mortgage) to secure its 40% portion of the financing, and the CDC takes a security interest in assets financed. Key Man life insurance is generally not required unless there is no succession of management. Other assets of the business or principals are generally not required. (unless the company is a startup or the credit is unusually risky or the asset being financed is considered a single purpose asset or doesn't appraise high enough).
There is a prepayment penalty for the first half of the loan term on the SBA 504 loan. In start up situations or single purpose buildings being financed, an equity injection of 15% is required.
The Certified Lender is a permanent lender only. This means the 50% first mortgage lender will have to bridge the Certified Lender's 504 loan portion until the project is complete. The Certified Lender will sell its bond and fund its loan when the c.o. is issued. Interest and fees on the bridge loan can be included in the project costs to be financed.