SBA 504 Loan Program Lender s Guide

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1 Eligible Use of Proceeds: Land acquisition and improvements New construction Purchase of existing building(s) Renovations to existing building(s) Purchase of Machinery and Equipment (minimum of 10 years useful life) Furniture and Fixtures (must be minimal in respect to total project costs) Professional Fees (engineering, architectural, environmental, appraisal) Contingency Fund (maximum 10% of construction costs) Interim construction loan interest Debt refinancing (limited to 50% of the cost of expansion) Ineligible Use of Proceeds: Loan Structure: Working capital Short-term machinery and equipment Inventory Franchise Fees Percentages of total project costs: 50% Bank conventional loan (senior lien) 40% 6BCC/SBA 504 loan (junior lien) 10% Borrower s land equity or cash injection Borrower may be required to provide a greater amount of equity/cash injection as follows: 15% if new business (2 years or less) or limited use facility 20% if both a new business and limited or special use facility

2 2 Examples of limited or special use facilities include: theaters sports arenas schools dormitories cold storage plants tennis clubs golf courses marinas service stations/convenience stores car wash properties hospitals and medical centers nursing homes funeral homes historic properties sanitary landfills museums, clubhouses and recreational properties hotels and motels The 6BCC/SBA 504 Loan amount will be reduced if the borrower is required to make a larger contribution toward project costs. The maximum amount of the subordinate 6BCC/SBA 504 Loan is $5 million, however, the maximum is $5.5 million for small manufacturers Terms: Senior Subordinate Bank Financing 504 Financing Real Estate loans at least 10 years 20 years Equipment loans at least 7 years 10 years Combination loans at least 10 years 20 years 504 Interest Rates Fees: The interest rate on the 6BCC/SBA 504 loan is fixed for the term of the loan and is based on U. S. Treasury rates. The bank determines its own interest on its first mortgage loan. SBA collects a one-time lender participation fee of 50 basis points of the Bank s senior loan. This fee may be passed on to the borrower as an interim funding fee. The Bank determines if any additional fees are charged to the Borrower for its interim and/or permanent loans.

3 3 Fees related to the 6BCC/SBA 504 Loan will total approximately 2.65% of the 6BCC/SBA 504 Loan amount and are financed within the 6BCC/SBA 504 Loan. Occupancy: Existing buildings occupy at least 51% of the total rentable property and 100% of the renovated rentable property. Lease long term no more than 49% of the rentable property. Loan proceeds cannot be used to improve or renovate any of the rentable property leased to third parties. New Construction immediately occupy 60% of the rentable property and continue to occupy 60% during the term of the loan. Lease long term no more than 20% of the rentable property to one or more tenants. Plan to occupy within three years some of the remaining rentable property not immediately occupied and plan to occupy within ten years all of the rentable property not leased long term. Permanent Note and Loan Documents: Appraisals: The Bank s permanent note and loan documents must not: allow for future advances except advances made for the reasonable costs of collection, maintenance, and protection of the Bank s senior lien; be cross-collateralized with other financing provided by the Bank; have an early call feature; be payable on demand unless the Bank s note is in default; and have a term less than, or require a balloon payment prior to, ten years if the SBA 504 Loan is for 20 years or 7 years if the SBA 504 Loan is for 10 years. The appraisal report must be prepared in compliance with Uniform Standards of Professional Appraisal Practice (USPAP) and be selfcontained or a summary report. Restricted appraisal reports are not acceptable under any circumstances. The appraisal report must be addressed to the Bank, 6BCC and SBA.

4 4 Environmental Reports: Interim Loan: SBA requires an investigation and assessment of the environmental risk on all commercial property used as security for any loan in order that the risks of environmental contamination be assessed and addressed. If actual or possible environmental contamination is an issue, SBA requires a No Further Action letter from the environmental consultant or Regulatory Agency. SBA 504 provides only permanent take-out financing. An interim lender (either the permanent lender or another lender) is required to provide the interim financing to cover the period between SBA approval of the project and the 504 debenture sale. The interim financing must be fully disbursed and the project completed prior to the sale of the 504 debenture with one exception. A portion of the debenture proceeds may be put into an escrow account to complete a minor portion of the total project. The bank providing the interim loan may use an interim note (which will be paid in full with the net 504 debenture proceeds) and a permanent note; or a single note, which includes both the interim and permanent financing, which will be reduced by the net 504 debenture proceeds. After the project is completed, 6BCC will close the subordinate 504 loan. The proceeds from the monthly 504 debenture sale will repay the interim lender for the amount of the 504 project costs that is advanced on an interim basis. The bank s permanent loan may be closed and begin amortizing prior to the 504 debenture funding as long as the bank obtains the borrower s written consent. Bank Commitment Letter: For 6BCC to receive an SBA approval of a 504 loan, the Bank s Commitment Letter (see sample included on page 6) must include the following: Acknowledge 100% of the total eligible project cost

5 5 Commit to provide up to 50% of the total eligible project costs State reason why the desired credit is not otherwise available, and State if the Bank is willing to provide the interim financing Bank Requirements at Closing of the Permanent SBA 504 Loan: Prior to the permanent SBA 504 Loan closing, the Bank must: Confirm that the interim loan has been fully advanced; Confirm that the Bank s note and loan documents comply with SBA s requirements; Subordinate any prepayment penalties, late fees and increased default interest to the 6BCC/SBA lien. Advances made for the reasonable costs of collection, maintenance and protection of the Bank s lien need not be subordinated; Waives as to the 6BCC/SBA lien any provisions in its lien instruments allowing for further encumbrances; and Provide for written notice to 6BCC and SBA of default within 30 days of any delinquency upon which the Bank intends to take action and 60 days notice prior to foreclosure. The following documents are required from the Bank and will be provided by 6BCC prior to the 6BCC/SBA 504 Loan closing: Interim Lender Certification (SBA Form 2288, sample included) Third Party Lender Agreement (SBA Form 2287, sample included)

6 6 Bank Letter Head Date Michael Fasulo, VP Six Bridges Capital Corporation 457 Southwest Drive Jonesboro, AR RE: 504 Applicant s Name Dear Michael; [Insert Name of Lender] has reviewed the borrower s application for a $ [insert total project amount] loan for full project financing for the [insert project components such as purchase, improvements, construction] of the [real estate and/or equipment] located at [insert address, city, state]. This Bank is not in a position to meet the borrower s request for full project financing at this time as [insert reason, such as, the loan maturity exceeds our credit policy ]. To the best of our knowledge, financing of the total project cost is not available at interest rates and terms prevalent in our community. [Insert Name of Lender], however, is willing to participate with Six Bridges Capital Corporation in the SBA 504 loan program to benefit [Insert Name of applicant]. In this connection, the Bank's $[insert amount of TPL loan] [insert % of Project Cost] would have an interest rate of [insert complete interest rate, not just the initial rate]. The note will be for a term of [insert term] to be amortized over [insert amortization period]. The project is located at [physical address of project property]. The bank commitment is contingent upon the collateral and guarantors listed below: List third party lender collateral requirements List guarantors for third party lender loan In addition, [Insert Name of Lender], is willing to provide an interim loan in the amount of $ [insert amount of interim loan] [insert % of the Project Cost] to be repaid from the proceeds of the debenture sale. This interim loan is to be secured by a [insert lien position] on the subject real estate. In addition, the SBA approval of this loan is conditioned upon the receipt by SBA from Bank of a one-time participation fee equal to one-half of one percent of the principal amount of the Bank loan attributable to the 504 project that is senior to SBA. [Optional: This is conditioned on the final Bank approval as well as the approval by the Small Business Administration.] Sincerely, Name and Title of Lending Official