504 LOANS FINANCE
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 Furniture & Fixtures||$0|
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.
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|
SBA 504 LOANS
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