504 LOANS FINANCE

Current Interest Rates | 20-Year: 4.43% | 10-Year: 4.02% | Refi: 4.47%

5-Year Interest Rate History

EQUIPMENT PURCHASE

504 Case Study Example

A widget manufacturer was just awarded a multi-million dollar contract, but needs to purchase a new piece of equipment to keep up with their growing demand.

Purchase Equipment $800,000
Real Estate $0
Purchase Furniture & Fixtures $0
Soft Costs* $0
Total $800,000

Unlike real estate, terms for equipment loans vary greatly.  Depending on the nature of the borrower’s lending relationship with the bank and how much equity they have in any existing equipment, the terms could run anywhere from three to ten years, a three to seven year range for the balloon and up to 20% down payment.  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 $640,000 $400,000
Growth Corp $0 $320,000
Borrower $160,000 $80,000
Total $800,000 $800,000

As shown, the borrower’s equity injection can be reduced by $80,000, 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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