Six Bridges Capital Corporation (6BCC) is a SBA Certified Development Company (CDC), acting as an agent for the SBA in the 504 loan program.
SBA 504 Loan Information
The SBA 504 loan product provides long-term financing for the purchase of fixed assets such as commercial real estate and equipment. Fixed assets are defined as assets that have a minimum useful life of ten years. 504 loans cannot be used to fund working capital or other intangibles, but do allow for refinancing of eligible business expenses to include secured debt and business operating expenses.
Current SBA 504 Loan Rates
6.285%
25-Year Fixed
6.365%
20-Year Fixed
6.601%
10-Year Fixed
There are three parts to a typical SBA 504 loan.
1
Conventional bank mortgage loan covering approximately 50% of the total project costs.
2
SBA 504 second mortgage loan (funded by Six Bridges Capital) covering approximately 40% of the total project costs.
3
The borrower’s contribution covering 10% of the project costs *
* If the project involves special-use real estate or a startup operation, an additional 5% contribution is required from the borrower in each instance. If the property is special use and involves a start-up operation, a 20% contribution is required.
Six Bridges Capital Corporation approves its portion of the project financing request and works with the first mortgage lender to approve its senior permanent loan as well as the interim construction loan, if necessary.
Details of a SBA 504 Loan
LOAN PURPOSE
The SBA 504 Loan can finance the purchase of real estate and the construction or renovation of buildings. It may also be used to purchase machinery, equipment, furniture, fixtures and project related soft costs. Refinancing of existing debt may be included in the 504’s total project cost. Eligible business expenses may also be refinanced under certain parameters.
LOAN AMOUNTS
Maximum SBA portion of loan amount (funded by Six Bridges Capital): Loans are generally capped at $5 million. Certain eligible energy-efficient or manufacturing projects may qualify for more than one 504 loan up to $5.5 million each. The SBA portion of the loan may not exceed 40% of the total project. There is no maximum for the third-party loan portion.
TERMS
The SBA 504 loan has a term of 20-25 years for commercial real estate and a term of 10 years for machinery and equipment, both fully amortizing.
PREPAYMENT PENALTY
Prepayment penalties will apply. The SBA 504 20-25 year fixed rate loan has a 10 year prepayment penalty. The 504 10-year fixed rate loan has a 5 year prepayment penalty. Both are required by SBA and are not negotiable. The 504 debenture prepayment penalty is reduced by 10% each year for the first 10 years on a 20-25-year loan and reduced by 20% each year for the first 5 years on a 10-year loan.
LOAN FEES
- SBA Funding Fee 0.25% of the 504 loan amount
- 6BCC Processing Fee 1.5% of the 504 loan amount
- Underwriter Fee 0.4% or 0.375% of the 504 loan amount (20 or 10 year loans)
- Closing Costs $2,500
COLLATERAL
The participating bank will take the first lien position on the 504 loan. Six Bridges Capital will take the second lien position on the 504 project assets. The assets will be deemed adequate when the applicant meets all of the following criteria:
- Strong, consistent cash flow that is sufficient to cover the debt;
- Demonstrated, proven management;
- The applicant business has been in operation for more than 2 years
- The proposed project is a logical extension of the applicant’s current operations.
If one or more of the above factors is not met, additional collateral and/or increased equitycontribution may be required. Because leasehold improvements provide minimal collateral value, Six Bridges Capital must always consider requiring additional collateral in this situation.
RECOURSE
All principals who own 20% or more of the business are required to provide a full guarantee. Principals and key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis.
When necessary to secure a collateral position, SBA will require the guarantee of a non-owner spouse to the extent of the spouse’s interest in the collateral.
The guarantee of affiliated companies may be required based on the percentage of ownership of the affiliate and the borrower’s relationship with the affiliate.
DEBT SERVICE REQUIREMENTS
SBA 504 loans are for strong healthy companies that are able to demonstrate the ability to repay the loan through historical, global, or projected cash flows.
INDUSTRIES
Loans can generally be made to all for-profit small businesses except those that do not meet SBA eligibility requirements, such as: businesses engaged in lending, loan packaging, investments, pawn shops, passive real estate investments, life insurance companies, small businesses located in a foreign country, pyramid plan sales, gambling, businesses which restrict patronage or promote a religion, cooperatives, non-profits, or individuals of poor character or on probation or parole.
