504 Loans

The SBA 504 loan program provides up to 90% financing on commercial real estate that will be at least 51% occupied by the borrowers business.  504 financing is structured with two loans, one provided by the bank at 50% loan to value, and another loan from the SBA at 40% loan to value plus a 10% down-payment from the borrower.  The bank’s loan is always a 1st deed of trust followed by the SBA’s 2nd deed of trust.

Here is an example on how this would look on a loan with a purchase price of $1,000,000:

Example on a $1,000,000 purchase:

• $500,000 Bank Loan 1st deed of trust
• $400,000 SBA Loan 2nd deed of trust
• $100,000 Borrower Down Payment

504 Loan Highlights

• Only for owner/occupied commercial real estate
• Ground Up Construction and Tenant Improvements
• Minimal down payment – as low as 10% (a 90% LTV)
• Loans up to $10,000,000
• Loan terms up to 30 years
• Fully amortized up to 20 years
• Max term 20 years on Special Purpose Property
• Fixed or Adjustable Interest Rates
• Pre-Payment Penalties on Fixed Rate Loans
• low down-payment requirements
• long repayment terms (20 years)
• projected income is considered, not just historical cash flows
• collateral may be less critical in loan qualification decisions

What are the main advantages of a 504 loan?

• low down-payment requirements
• long repayment terms (20 years)
• projected income is considered, not just historical cash flows
• collateral may be less critical in loan qualification decisions