| Lenders |
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Collateral
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).
Process
Call or email us to discuss your project. Talk to your bank of account to see if the bank wants to participate by doing the permanent first mortgage and bridge loan. Meet with the CDC loan officer and structure the deal. Submit the CDC application which consists basically of the same materials you will submit to your bank. Basic application materials include:
- 3 years of financial statements and federal tax returns on the company (if in existence for 3 years)
- if there is no historical cash flow ability to service the proposed new debt, submit 2-3 years financial projections;
- personal financial statement (assets and liabilities) on the owners of the company;
- written history of the business, reasons for expansion, plans;
- copy of contract of sale;
- personal history statement of principals indicating citizenship status, etc.
The CDC's staff will investigate and evaluate you and your company. The CDC will draw credit reports, do supplier, bank and trade checks, visit your existing and proposed operations/facilities; assess your credit ability and character.
Once your bank or other 50% first lien lender has indicated an interest in financing the 50%, the CDC staff prepares a loan memorandum and presents it to CDC's Board which meets at least once per month (more often if necessary). Once the board approves the project, the CDC presents the application to the SBA to acquire its agreement to guarantee the CDC's bond. This generally takes a few days. The CDC then issues a commitment and your bank closes its first mortgage loan and bridge loan. You take the bank's funds to complete the project. When the project is complete, you close with the CDC and the CDC wires its money to the bridge lender. You then pay the CDC back for the SBA 504 loan. The CDC services the loan for its life.
Special Notes
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.