504 LOANS FINANCE
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 Furniture & Fixtures||$250,000|
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.
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|