SBA 504 Loan Program

The 504 is essentially two loans, the first lien position loan is funded by a conventional bank, the second lien loan is the CDC or SBA loan.  The CDC piece is fixed and amortized over 20 years (a huge benefit in and of itself).  The bank loan ranges in terms like any conventional bank loan, though most are amortized over 25 years with fixed periods ranging from 3, 5, 10 and 25 years (Take a look at our 25 year fixed program here).  The banks loan sits at 50% loan to value and the SBA loan covers 40% loan to value.  The borrower contributes the last 10%, via the down payment.

Another major benefit to the SBA 504 loan is how the down payment is calculated compared to conventional loans.  The down payment is factored off the "total project cost", meaning fees like closing costs, 3rd party costs, renovation costs, etc. can be rolled into the loan and the 10% down payment is factor off that total amount.  This is called the "total project cost".  As a comparison, most conventional bank loans have the down payment calculated off of the purchase price, than all other fees/cost go on top of the down payment.  This substantially increases the amount of cash borrowers have to put into the transaction.   This is a very important point that should not be quickly brushed off.  Most conventional loan programs do not have this ability to include fees, equipment, construction cost, etc into the loan amount.