504 LOANS FINANCE

Current Interest Rates | 20-Year: 4.42% | 10-Year: 4.47% | Refi: 4.46%

5-Year Interest Rate History

COMMERCIAL REAL ESTATE PURCHASE

504 Case Study Example

A widget manufacturer that has been leasing space wants to construct a building to facilitate business expansion.

Purchase Land $500,000
Construct Building $1,500,000
Purchase Furniture & Fixtures $250,000
Soft Costs* $150,000
Total $2,400,000

*Soft costs can include interim interest and fees, professional fees, a construction contingency, appraisal and environmental costs, etc.

If a bank was willing to finance the project conventionally, it would typically lend up to 80% of the project costs at a floating interest rate with a 15 year amortization and a balloon after three to five years.  However, utilizing the 504 Loan Program, up to 90% of the project costs can be financed.  The bank lends up to 50%, thereby reducing its risk and corresponding interest rate.  Growth Corp lends up to 40% at a fixed rate for 20 years, with a down payment of only 10% from the borrower.

Conventional With 504
Bank $1,920,000 $1,200,000
Growth Corp $0 $960,000
Borrower $480,000 $240,000
Total $2,400,000 $2,400,000

As shown, the borrower’s equity injection can be reduced by $240,000, thereby conserving cash and providing the necessary working capital to support continued growth.  Additionally, cash flow is improved as a result of the longer maturity and potentially lower interest rates.

Typical 504 Financing Structure

 Project Costs Source Lien Funding Limits Rate Term Real Estate Term Equipment
50% Financial Institution 1st No limit Market 10 years or longer 7 years or longer
40% Growth Corp 504 2nd $5 to $5.5 million Fixed 20 years 10 years
10% Applicant/Borrower

Ready to launch a new project?

877-BEST 504

www.GrowthCorp.com

Central IL Office 217.787.7557   |   Chicago Office 773.880.1455  |  Southern IL Office 618.932.3786

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