504 LOANS FINANCE
THE 504 CLOSING PROCESS
My Client Was Approved For a 504 Loan…Now What?
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1. Read through the entire Loan Authorization document, as it sets forth the terms and conditions under which SBA provided the guaranty on their loan. It also outlines the servicing actions and loan compliance requirements for the term of the loan.
2. Review the Commitment Fee Invoice. Quite a few people get confused about this and your borrower may ask you to explain this one. The commitment fee is essentially a deposit. As stated in Section III of the application agreement, “the Commitment Fee, together with the application deposit, will be used to pay for the closing costs, including, but not limited to, credit reports, title insurance, recording and search fees, Growth Corp legal fees, and all other out-of-pocket costs”. Growth Corp will send a statement detailing the costs paid from these funds together with a refund of the balance, if any, after the loan is funded. (Please note: the loan cannot proceed with closing until these fees are paid in full.)
3. Expect a call from the Closing Officer assigned to the project. They’ll go over timelines, checklists, and explain the closing process in detail.
Growth Corp’s Closing Team works diligently to ensure approved projects are funded in a timely manner. As soon as a 504 loan has been approved, a Closing Officer is assigned to the project and will thoroughly prepare all the paperwork necessary for closing and will provide you with a project-specific closing checklist. Keep in mind…borrowers continue to work with their bank throughout the process, and you will assist your borrower in gathering the following documents necessary for closing:
• Title Work
• The Bank’s 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 the closing book, but can be collected while awaiting closing or at closing.
When Is the Interest Rate Locked In?
The interest rate on 504 loans is determined at the time the 504 debenture pool is sold to the private market and is based on current market conditions, which fluctuate. This typically happens approximately six weeks after your project is fully complete. All SBA 504 loans are funded using the same market sale process, so interest rates in any given month are the same nationwide…regardless of CDC.
Hurdles That Often Delay Closing…
Typically, there are two aspects of closing that can be time-consuming: obtaining life insurance, if required, and appraisals/environmentals. Please address these as early in the process as possible.