California Statewide: Lender FAQs

BACK TO LENDERS

California Statewide: Lender FAQs

Who can participate in an SBA 504 project?
Banks, Savings and Loan Associations, Credit Unions, Pension funds, Insurance companies, Commercial lending companies, Taxable Industrial Revenue Bonds, and Individuals participating as a lender are permitted to participate.
Back to top

What are SBA's requirements regarding the Loan terms from the Participating Lenders?

  • The Lender Loan must have a term of at least 7 years when the 504 loan is for a term of 10 years and at least 10 years when the 504 loan is for 20 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.
  • Third party lender participation fee is 0.50% of first mortgage.

Back to top

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

  • The Lender financing must be equal to or greater than the debenture.
  • The net debenture may not exceed 40% of the project's total cost.
  • 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.
  • Back to top

    Can existing equity in the Project Property be used as all or a portion of a Borrower's injection?
    Yes. The Borrower's injection may be existing equity in land (including buildings, structures and other site improvements that will be part of the Project Property) previously acquired by the Borrower.
    Back to top

    Can pre-existing debt on the Project Property be refinanced with SBA 504 Project Loan Proceeds?
    Sometimes. If the 504 project represents an expansion for the small business, up to one-third of the SBA 504 project cost can be used to pay off the pre-existing debt on the collateral property, provided that the project meets SBA refinance criteria.

    On a case-by-case basis, when the project is comprised of land and building and was acquired less than nine months before the loan application is received by SBA, short-term financing used to acquire the project property may be eligible for refinancing, subject to SBA’s review and approval of the short term note.

    The Small Business Jobs Act of 2010 also allows for refinance of certain non-SBA commercial debt meeting specific requirements. This particular program is available for only a temporary period of time and expires in September 2012.

    Please contact your California Statewide CDC market team representative for further information on refinance of existing debt using SBA 504 proceeds.
    Back to top

    What are SBA's Community Development Goals and Public Policy Goals (any one of which can qualify a project)?

    Community Development Goals:

    • Improving, diversifying or stabilizing the economy of the locality
    • Stimulating other business development
    • Bringing new income into the community
    • Assisting manufacturing firms under North American Industry Classification Systems (NAICS Sectors 31 – 33)
    • Assisting business in Labor Surplus Areas as defined by the Department of Labor

    Public Policy Goals:

    • Business District Revitalization: A project located within a business district of a community with a written revitalization or redevelopment plan.
    • Expansion of Exports: The business must derive a least 10% of its revenue from export sales at the time of the project, or is projected to be 10% of the business’s revenue as a result of the project.
    • Expansion of Minority Business Development: Loans to small businesses owned 51% or more by minority owners who are U.S. Citizens.
    • Rural Development: Projects located in rural counties or in a metropolitan area with a resident population of less than 20,000 and SBA has determined such area to be rural.
    • Enhanced Economic Competition: A project that increases a business’ competitiveness through advancement of technology, plant retooling (expansion or modernization of manufacturing facilities), or conversion to robotics.
    • Restructuring Because of Federally Mandated Standards or Policies: A project that involves modernizing or upgrading facilities to meet health, safety, and environmental requirements.
    • Energy Efficiency Policy Goal: Reduction of existing energy consumption by at least 10%.
    • Energy Efficiency Policy Goal: Buildings with sustainable designs, including LEED standards or designs that reduce the use of greenhouse gas emitting fossil fuels or low-impact design that reduce the use of non-renewable resources.
    • Energy Efficiency Policy Goal: Renewable energy production facilities such as micro power or biodiesel and ethanol producers.
    • Changes Necessitated by Federal Budget Cutbacks: A project in which a business is locating or expanding in an area impacted by Federal budget cutbacks, such as facility closing or cutbacks in defense-related industries.
    • Expansion of Small Business Concerns Owned and Controlled by Veterans: Loans to Veteran-owned firms. The ownership by the Veteran must be 51% or more.
    • Expansion of Small Business Concerns Owned and Controlled by Women: Loans to firms owned by women. The ownership by women must be 51% or more.

    Back to top

    What are SBA's requirements for appraisals?
    Generally, SBA accepts appraisal reports that are prepared in compliance with Uniform Standards of Professional Appraisal Practice (USPAP) and by State-licensed or State-certified appraisers.
    Back to top

    Is an environmental report required when the purchase of real property is being financed with an SBA 504 loan?
    Yes, SBA loans typically require a transaction screen or Phase 1 environmental report. California Statewide works closely with the lender to ensure that the appropriate environmental reports are conducted for the project property.
    Back to top