By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
The SBA 504 loan program is one of the best commercial real estate loans in the industry. Primary benefits include, low down payment at 10% and low, long term fixed rates. Amortization periods can be as long as 25 years as well. No other loan program offers this blend of benefits.
General Information on SBA 504 Loan
The 504 is comprised of two loans. The first lien position loan is funded by a conventional bank, the second lien loan is funded by a CDC (Certified Development Corporation). The bank loan has terms that vary like any commercial mortgage from one bank to the next, though most are amortized over 20 to 25 years with fixed periods ranging from 3, 5, 10. The conventional loan sits in first lien position at 50% loan to value. The CDC loan is normally fixed and amortized over 20 years (a huge benefit in and of itself). It sits in second lien position and goes from 51% loan to value to 90%. The borrower contributes the last 10%, via the down payment.
Another major benefit to SBA 504 loans 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 factored 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/costs 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, it helps you keep more cash in your business.
The SBA 504 loan program helps small business owners purchase commercial real estate, with the lowest down stroke, longest fixed period and lowest rates in the business.