The 504 Loan Program is owner-occupied real estate and equipment financing.

Growth Corp’s 504 Loan Program helps provide small businesses with better access to money for expansion than would otherwise be available through conventional financing.  The 504 Loan Program is available to most businesses for the purchase, construction, or expansion/renovation of buildings and/or the purchase of equipment.

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• Low down payment (10% in most cases) – helps conserve valuable working capital
• Low, fixed interest rate on 504 – avoids future adverse rate fluctuations
• Long loan term – brings debt service in line with cash flow generated by the business
• Loans are advanced based upon project costs and not appraised value
• Keep other assets from becoming encumbered
• Option to refinance debt related to fixed assets if also looking to borrow more money to finance real estate or equipment purchase

Small businesses looking to finance expansion often find the 20% down payment required with conventional loans takes too much of their working capital and the rates, terms, and conditions are not attractive.  If you are a growing small business whose expansion plans include the investment and use of real estate and/or equipment, there is another way!  Growth Corp can help you achieve your goals by providing long-term, fixed-rate financing through its 504 Loan Program.

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Most small businesses qualify for the 504 Loan Program.  The business must:

• Be operating a for-profit business
• Be organized as a corporation, sole proprietorship, partnership, LLC, etc.
• Be located in the U.S.
• Have a tangible net worth of less than $15 million and profit after taxes of less than $5 million (including affiliates)
• Have a successful track record and growth potential
• Occupy majority of project property (or owner-occupied property)

Projects that qualify must, according to SBA guidelines, promote economic development, which generally means the creation or retention of jobs. 

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• Private restrictive clubs and speculative real estate investments
• Businesses primarily engaged in lending (i.e. banks, credit unions, finance companies)
• Insurance companies, although independent insurance agencies are eligible
• Offshore facilities
• Businesses that derive a significant portion of their revenue from speculative operations (i.e. commodity traders)
• Lobbyists
• Businesses with more than 1/3 of their revenue from legal gambling
• Residential, Investment (non-owner occupied)

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• Industrial companies that may have capacity or efficiency limitations or need to install new equipment at their current facility. May include industries such as commercial printers, machine shops, freights & transport, wholesalers, food distributors, and manufacturers.
• Office buildings and condos that may need a substantial build-out and/or furnishings such as doctors, dentists, chiropractors, physical therapists, accountants, lawyers, architects, graphic designers, etc.
• Retail companies such as motels, restaurants, car washes, farmer’s markets, boutiques, auto repair shops, gas stations, and convenience stores.

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Generally, any project involving the purchase, construction, or improvement of fixed assets is eligible.  Examples include:

• Land and building acquisition
• Construction and renovation, including extensive renovations to increase energy efficiency overall
• Purchase of heavy machinery or equipment
• The refinance of debt related to fixed assets if also looking to borrow more money to finance a real estate or equipment purchase
• Refinancing on qualifying debt up to 50% of project costs

In addition, reasonable contingencies (up to 10%), furniture and fixtures, and soft costs (such as professional fees and interest during construction) generally can be included. 

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Growth Corp can lend up to 40% of the total financing, to a maximum of $5 million.  This amount is increased to $5.5 million for manufacturing companies.

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The 504 provides borrowers 90% financing at a long-term, below market, fixed rate…
In most cases, the 504 Loan Program can provide up to 90% financing, allowing borrowers to preserve working capital and receive a low, long-term fixed rate.  The Program essentially consists of three components:


*Higher equity requirements exist for start-up or leveraged companies and/or projects involving acquisition, changes of ownership or construction of limited or single purpose real estate

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Most of the upfront fees associated with the 504 Loan Program are included in the loan from Growth Corp.  Total processing fees are approximately 3.15% of the amount of the SBA 504 loan, plus Growth Corp attorney fees totaling $2,500.  Here is a breakdown of the fees:
    Growth Corp Processing Fee                                    1.500%
    Colson Services Fee                                                 0.250%
    Bond Underwriter (20 year bonds)                            0.400%
    Lender’s First Mortgage Fee                                     0.500%
    SBA Guarantee Fee                                                  0.500%
    Total                                                                           3.15%

Closing costs including Growth Corp Atty Fees            $2,500

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Yes.  For an existing building, a small business must occupy 51% and may lease up to 49%.  However, for a newly constructed building, a small business must occupy 60%, may lease 20% long-term, and lease 20% temporarily with the intention of using some of the 20% within three years and all within ten years.

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504 loans are a fixed-rate loan, fully amortizing over 20 years (10 for equipment), and there are no rate adjustments for that period.  Most conventional financing is fixed for a period of only about five years.

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The borrower’s down payment must be documented and can be either:

• Cash
• Equity in land (must be project property) if owned greater than two years…and we can use the appraisal value vs. cost.

In some circumstances, SBA will allow for the equity contribution to be borrowed.  If the borrower chooses to borrow their down payment for the 504 Project, the following rules apply:The interest rate on the loan for the borrowed equity must be reasonable.

• Any lien(s) filed by the lender (for the borrowed equity) on the project property must be subordinate to the 504 loan.
• The equity loan cannot be from another SBA loan program.
• The borrower may not repay the loan for the equity contribution at a rate faster than the 504.
• If the borrowed equity is collaterized by assets other than the project property, the borrower must demonstrate repayment of the loan for the equity contribution from sources other than the cash flow of the business (note:  the salary principal received from the applicant small business does not qualify as an outside source).
• The lender may not receive voting rights, stock options, or any other actual or potential voting interest in the small business.

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Yes.  The 504 enables borrowers to include renovations, closing costs, and other soft costs along with furniture, fixtures, and equipment in the financing package.  And, expenditures within 9 months of the date of the application, including land and buildings, and/or equipment, can be included in the project costs and be reimbursed by the interim lender net of the borrower's equity injection.  Costs incurred prior to that day may be included solely at the SBA’s discretion.

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Here’s the overview…

• Appraisal reports must be requested by, and prepared for, the CDC. Therefore, an appraisal ordered by and addressed just to a third party lender is not sufficient. The appraisal report used for a 504 project must name Growth Corp and the SBA, as an addressee. If we aren’t named in the appraisal, SBA will not accept it and a new appraisal will have to be ordered, resulting in delayed processing and a higher cost to the borrower.
• Regarding environmental reports, a Phase I is required for a property that is currently used by an environmental sensitive industry, or has historically been used by such an industry.  Contact a Loan Officer for the list of NAICS codes which have been deemed environmentally sensitive businesses.
• In addition, a Phase I Environmental must also be accompanied by a reliance letter completed by the environmental engineer on their company letterhead.  The letter must also be accompanied by proof that the environmental engineer has at least $1 million in errors and omissions liability insurance.
• Finally, gas stations and convenience stores are subject to much more rigorous environmental requirements.  Please contact a Loan Officer for further details.

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Borrowers must meet one of the following Job Creation, Community Development, or Public Policy Goals

Job Creation Goals:

• At least one job for every $65,000 of project debenture or for every $75,000 in E-Zone and Labor Surplus areas ($100,000 for small manufacturers)

Community Development Goals:

• Improving, diversifying, or stabilizing the economy of the locality
• Stimulating other business development
• Bringing income into the community
• Assisting manufacturing firms (Standard Industrial Classification Codes 20-49)
• Assisting business in Labor Surplus Areas as defined by the Department of Labor

Public Policy Goals:

• Business District Revitalization: A project located within a business area of a community with a recognized revitalization or redevelopment plan.
• Expansion of Exports:  The business must derive at least 10% of its revenue from export sales at the time of the project or will be 10% of the business's revenue as a result of the project.
• Expansion of Minority Business Development:  Loans to minority-owned firms.  The ownership by the minority must be 51% or more.
• Rural Development:  projects located in rural areas according to the USDA.
• Enhanced Economic Competition:  A project that increases a business competitiveness through advancement of technology, plant retooling (expansion or modernization of manufacturing facilities), or conversion to robotics.
• Restructuring Because of Federally Mandated Standards or Policies: A project that enables the business to meet requirements to improve the environment, safety or health of employees.  Examples would be pollution control equipment, removal of asbestos, etc.
• Changes Necessitated by Federal Budget Cutbacks:  A project in which a business is locating or expanding in an area impacted by Federal budget cutbacks, such as facility closing or cutbacks in defense-related industries.
• Expansion of Small Business Concerns: 51% or more owned by women.
• Expansion of Small Business Concerns: 51% or more owned by veterans.
• Increased Use of Sustainable Design: Including designs that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact.
• Reduction of energy consumption by at least 10%
• Plant, equipment, and process upgrades of renewable energy sources such as the small-scale production of energy for individual buildings or communities’ consumption, commonly known as micro power, or renewable fuels producers including biodiesel and ethanol producers.

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504 loans must be prepaid in full and there is no penalty if pre-payment occurs in the second half of the term (e.g., years 11-20 for a 20 year loan).  During the first half of the loan term, the pre-payment penalty declines over time, beginning at one year’s interest.

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• The 504 loan is typically secured with a subordinate lien on all project assets.
• The SBA requires that the 504 loan must have a security interest in all project assets.
• We can recognize existing prior liens in the case of building expansions and renovations.
• personal guarantees of all principals owning more than 20% of the company are required.
• If the business is a start-up, or the asset being financed is considered single-purpose, or the credit is unusually risky, additional collateral may be required.
• Key man life insurance is typically required unless there is a strong management succession plan.
• Adequacy of collateral is a credit decision – additional collateral can be required by Growth Corp or SBA.

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A single-purpose building is one in which usage is limited to one specific function and major construction would be required to use the building in another capacity.  For instance, businesses with limited use are golf courses, swimming pools, hospitals, funeral homes with crematoriums, bowling alleys, and car wash properties.

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To qualify as a small manufacturer, the business must be classified under sector 31, 32, or 33 of the North American Industrial Classification System (NAICS).  Also, the business must have all of its production facilities in the United States.  Small manufacturers must follow the same economic development requirements of job creation and/or meeting public policy goals.

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A new business is a business that is 2 years old or less at the time the loan is approved.  A business that is more than 2 years old at the time the loan is approved may be considered a new business if it is a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations.  The CDC will review the management and level of debt and make a determination whether an additional borrower’s contribution of 5% is necessary.

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Small businesses can refinance existing debt related to fixed assets if they are also looking to borrow more money to finance a real estate or equipment purchase.  The original debt must be for an eligible use of 504 proceeds and the amount of debt to be refinanced must be 50% or less of the total cost of expansion.  In addition, the borrowers must have been current on the existing debt for the past 12 months and the terms and interest rate on the new loan must be better than the existing loan.

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With the 504 Loan Program, lenders will generally process their loan as they would with any other

• Provide the interim funding until the deed is recorded
• The bank’s term of loan (commitment) must be ½ of Growth Corp’s bond, but no less than seven years (equipment) or ten years (real estate).
      o   Usually a 10-year commitment on real estate
      o   Likely 5-year adjustment (but can be floating or fixed)
      o   Amortization is usually 20-25 years
• Bank gets first lien on all project assets
• Bank’s loan cannot be cross collateralized with any existing debts
• Advance is always based on the project costs
      o   Appraisal usually comes in at or around 90% of land and building cost
• Bank is asked to provide copies of its own loan documents

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Not necessarily.  The 504 can take out 30-40% of a project that is currently in its interim construction phase, slashing the risk for your bank.  Since our closings can’t happen prior to all construction being completed, it gives us the opportunity to still come into a construction project after it has started…and possibly even after its completed…as long as it is still financed with a construction/interest only loan.

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Growth Corp’s Closing Team works diligently to ensure your approved projects are funded in a timely manner.  Keep in mind…the following documents will be required to get the closing process started:

•  Appraisal
•  Environmental
•  Title Work
•  Interim Note and Mortgage
•  Organizational Docs
•  Life Insurance Policies…these can be time consuming, so please plan ahead

Additional documents will also be needed to complete our closing book, but can be collected while awaiting closing or at closing.  However, the documents listed above are necessary for our legal department to begin preparing the closing documents.

The timing of funding will then depend on where we are in the current cycle, as we are always working 30-60 days out.  Here’s why…once our legal department gets all the closing documents prepared, our attorneys will schedule a closing.  Post-closing, the complete file is then turned over to the SBA and the loan is pooled with all the other 504 loans funded in the same month.  The pool of loans are sold to investors in the form of debentures…typically on the first Tuesday of every month.  The borrower’s interest rate will be determined from the sale of those debentures and is based on current market conditions.  

Once the rate is established, the borrower will receive their amortization schedule and begin making payments to Colson Services Corporation.  This corporation handles the payment processing and loan accounting for all SBA 504 loans.  Keep in mind…all questions regarding the loan should still be directed to Growth Corp.  We have an in-house Loan Servicing department available to answer any questions you may have about your payment, interest, or amortization schedule.

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Borrowers can utilize the 504 multiple times so long as the maximum lending limit isn’t exceeded.  The current 504 limits are:

• $5MM for standard projects
• $5MM if the project fulfills Public Policy Goals
• $5.5MM for manufacturing firms or energy saving improvements

Keep in mind these maximums only apply to the 504 portion of the financing package, which means any existing customers hoping to expand their facility or acquire more equipment may utilize the program again and again.
 
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With lease expenses expected to rise dramatically in the coming years, small business owners should consider purchasing rather than leasing…with the 504 their mortgage payment may even be less than their current lease payment.

Many small business owners rent their business property because they fear that purchasing real estate will require a large down payment. The 20-25% down payment required with conventional financing dips too far into their working capital and may leave them short on cash for their everyday business expenses.  However, with the 504 Loan Program’s low equity requirements, small business owners can realize the benefits of property ownership while still preserving their working capital.  Check out some of the advantages of owning versus leasing:

• Stabilize, or even reduce, the business owner’s monthly real estate expense
• Build equity – increases net worth with every monthly payment
• Additional tax savings
• Long-term appreciation
• Business can continue to generate income even after owner retires
• No monthly lease expense in the future

Let’s look at an example…a restaurant has been leasing space on Industrial Drive since incorporating in 2007.  The company was paying monthly rents of $21,875 plus real estate taxes.  An opportunity to purchase the property for $2,000,000 came about, and was financed 50% by the first mortgage lender and 40% by the SBA 504 Loan Program – with the borrower only putting down 10%.  The combined monthly payment on the acquisition of this property is approximately $16,000/month – a savings of nearly $6,000.

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Certified Development Companies (CDC’s) are authorized by the U.S. Small Business Administration to market the 504 Loan Program, identify candidates, process, approve, close, and service the loans. Growth Corp is the Midwest’s largest CDC and one of the top ten CDC’s nationwide.

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When you have questions about the 504, you need a Certified Development Company (CDC) that has been through the process more than once or twice.  Our Loan Officers have decades of experience and focus exclusively on 504 loans.  In addition, we have an in-house closing department working diligently to ensure approved projects fund in a timely manner.  And, once your 504 loan has funded, we also have an in-house servicing team available to answer any questions you may have regarding your loan or payment.

Headquartered in Springfield, Illinois, Growth Corp was founded in 1982 and began building its highly qualified professional staff.  In the years to follow, loan volume increases secured a ranking for the organization as the largest 504 lender in the Midwest and one of the fastest growing CDC’s in the nation.

We take pride in the efficiency we bring to the 504 lending process.  Fast, efficient turn-around, with an attention to detail will quickly get you, or your client, on the road to realizing the dream of commercial property ownership.

With offices and lending professionals strategically located throughout the Midwest, Growth Corp is well positioned to provide lenders and businesses with the highest level of service available.  We service a loan portfolio of over a half billion dollars and our record of growth and performance speaks for itself.

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Normally no. If the corporation has assets in addition to long-term fixed assets, 504 loan proceeds must not be used to purchase the stock. Instead the 504 loan proceeds can be used to purchase the fixed assets from the corporation. Other financing (such as 7(a) guaranty loans) can be used to purchase the stock of the company. (This may require revaluation of the stock.) The exception would be the rare instance when the corporation's assets are only the eligible long-term fixed assets in which case the purchase of the stock is the purchase of the long-term fixed assets.

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This is a credit decision that must be carefully made on a case-by-case basis. Generally, it is SBA's policy that one 504 debenture should finance one site. The reason a borrower may want a 504 project to finance more than one site is that it is less costly for the borrower in terms of closing costs; however, there is the added risk that if one 504 debenture financed two or more sites, and one of those sites fails while the other does not, the failure of the one could result in both failing through foreclosure. If these credit concerns can be offset, then financing more than one site may be feasible.

In such projects, the CDC should obtain an agreement from any prior lien holder on the project to the effect that the prior lien holder will claim priority in the proceeds of the sale or other return on the real estate over the interest of SBA only in the principal amount outstanding of the apportioned share that collateral represents to the whole project together with the same proportion of the accrued but unpaid interest remaining on it and its expenses directly related to realizing on this collateral.

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Yes, under the following circumstances: The 504 project finances only the acquisition of eligible long-term fixed assets; the acquisition of any other assets such as receivables or goodwill have to be financed by other means such as the 7(a) program; and if the change of ownership includes a stipulation that jobs are going to be retained because of the change of ownership, there has to be a reasonable assurance that the jobs would be lost without the change of ownership. This can be in the form of a statement from the seller to that effect, or some other certification acceptable to the SBA field office.

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