California Statewide: Broker FAQs


California Statewide: Broker FAQs

How long does it take to obtain approval for a 504 loan?
A lot depends on the borrower. With complete information and documents, we can put together the loan package relatively quickly. The timing often depends on obtaining the appraisal and environmental reports as early as possible. All things being equal, California Statewide consistently meets the demands of 45 to 60-day escrows. It is always good advice to bring us into the process early in order to discuss project timing. SBA loans do not take longer to close than conventional loans.
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What is the minimum down payment required?
A minimum down payment of 10% is required for most 504 projects. However, a 15% down payment is necessary when a business is a start-up enterprise (less than 2 years old) or when the project property is considered special-purpose. A 20% down payment is required in situations involving both a start-up business and a special-purpose property.
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How much does a 504 loan cost?
SBA 504 loan fees are determined by SBA regulations. The origination fee for an SBA 504 loan is approximately 2.65% of the loan amount, plus the attorney closing fee of $2,300. The origination fee is included in the loan amount and financed over the term of the loan (20 or 10 years) and is therefore not out of pocket.
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What will be my interest rate on the 504 loan?
The interest rate on the loan will be determined by a market sale of the bond at the time the 504 debenture pool (the pool of 504 loans) is sold, and the interest rate will be fixed for the term of the loan. It is this 100% government guarantee that experts predict will enable the bond to be funded at below conventional lending interest rates and on a fixed rate basis. The effective rate (which includes all ongoing fees) is roughly equal to the 10-year Treasury bill rate when the debenture is sold, plus a market spread and standard SBA fees for servicing of the loan.
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Is there a penalty if I prepay my loan?
Yes. However, the amount of the prepayment penalty decreases each year and disappears after year five for a 504 loan with a 10-year maturity and after year 10 for a 504 loan with a 20-year maturity. The formula for calculating the prepayment penalty on a 20-year 504 loan is as follows:

Repayment Fee = D (I x P), where
D = the remaining principal balance of the Debenture
I = the interest rate stated on the face of the Debenture expressed in decimal points (“cost of funds”)
P = the factor set forth below for the applicable year:

Year P
1 1.00
2 .90
3 .80
4 .70
5 .60
6 .50
7 .40
8 .30
9 .20
10 .10
11 and thereafter 0

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What are SBA's requirements for appraisals?
Generally, SBA accepts the appraisals from the first mortgage lender.
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Is an environmental report required when the purchase of real property is being financed with an SBA 504 loan?
Yes, typically SBA loans will require a transaction screen or Phase 1 environmental report. California Statewide works closely with the lender to insure that the appropriate environmental reports are conducted for the project property.
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What are SBA's requirements regarding the Loan terms from the Participating Lender?

  • The Lender Loan must have a term of at least 10 years when the 504 loan is for 20 years and 7 years when the 504 loan is for a term of 10 years.
  • Interest rates must be reasonable.
  • The Lender Loan must not have any early call feature or contain any demand provisions unless the loan is in default.
  • The Lender Loan must not be open-ended.

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What are the general rules to determine if a Project Financing Structure qualifies for an SBA 504 loan?

  • The Lender financing must be equal or greater than the SBA debenture.
  • The net debenture may not exceed 40% of the total cost of the project.
  • The borrower's injection must be at least 10% of the total project cost, and may be more, as required by statute or for credit reasons.
  • No more than 50% of the project costs can come either directly or indirectly from Federal sources.

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