SBA 504 Loans: the UCEDC / Commercial Lender Partnership

Overview

The SBA 504 program combines the resources of a commercial lender, a CDC, and the borrower for long-term financing of owner-occupied property and major equipment purchases. Bank typically finances 50% with first lien position; CDC, 40% with second lien; borrower, 10% equity contribution.

Amount

CDC maximum is 40% of total project, up to $5 million (SBA guaranteed debenture)

Eligibility

For-profit businesses that meet the SBA’s small business size definition. Non-profits, religious institutions, real estate investors, and financial institutions do not qualify.

Uses

Construction, purchase or improvement of owner-occupied property
Purchase of long-life equipment

Benefits to Customer (on 2nd lien)

Long-term financing, 10-25 years
Below-market fixed rates (set when pooled debentures are sold monthly)
As little as 10% down
Financing of fees and closing costs

Benefits to Bank

First lien position
50% loan/value ratio
Greater portfolio diversity & credit risk management
Ability to service more customers
Improved competitive position
CRA credit

UCEDC Criteria

10% equity (15% if special purpose)
Personal guarantee
Minimum score – 650
Minimum DCR – 1.15:1
Must have industry-specific experience