SBA Loans
SBA 504 Loans
The SBA 504 loan program is designed to provide loans to borrowers looking to buy, construct or improve commercial and industrial buildings as well as buy and install heavy machinery and equipment. The 504 program allots for larger loan amounts and lower down payments than conventional loan programs and offers extended loan terms.
Key advantages of SBA-504 loan over traditional business loans:
- Lower down payment – the business owner pays only 10% down, borrowing up to 90% of the total financing needs, thus preserving cash for the business
- Longer repayment terms – SBA repayment periods are longer than conventional bank loans – 20 years fully amortized for real estate loans and 10 years fully amortized for equipment loans. The borrower’s monthly loan payment is more affordable, improving cash flow
- Below-market, fixed interest rate
- Projected income consideration – SBA lenders consider projected income of a business in addition to historical cash flows. This is particularly advantageous for growing businesses
- Secondary source of payment less critical – With the SBA-504 loan guarantee, collateral may be less critical in qualifying a borrower for a loan.
A SBA-504 loan has three participants:
- Bank – provides a first trust deed loan for at least 50% of the total project cost
- CDC – provides SBA-guaranteed 504 loans for up to 40% of the total project cost, or a maximum of $2 million ($4 million for manufacturing businesses)
- Small Business Owner – contributes a down payment of at least 10%
To qualify for a SBA-504 loan, a business must:
- Be owner-operated
- Be for-profit
- Be organized as a sole proprietorship, corporation, partnership or limited-liability corporation (LLC)
- Have net worth no greater than $8.5 million and net profit after taxes below $3 million in the last two operating years
- 51% owner occupancy for existing building
- 60% owner occupancy for new construction
- Equipment must have a minimum 10-year economic life
- Have net worth no greater than $8.5 million and net profit after taxes below $3 million in the last two operating years
- The bank portion of the loan package is typically amortized with a minimum term of 10 years up to a maximum of 25 years. Rate term and fees are negotiable between the borrower and bank
- The CDC portion can be offered with term options of 10 or 20 years fully amortized. The interest rate on a 504 loan is set at an increment above the current market rate for five-year and ten-year U.S. Treasury issues. Fees are approximately 2.125% of the loan amount, plus a fixed fee for a legal review. All fees are financed in the 504 loan.
- To learn more about the SBA 504 program, visit the official SBA website at http://www.sba.gov.
SBA 7(a) Loans
StoneWater assembles SBA loan packages and shops the loan to find a lender willing to fund the project. Because StoneWater works closely with several national and local lenders, we are familiar with the funding inclination of the different banks in terms of start-ups, smaller loans and industries. As a result, StoneWater can efficiently pinpoint a lender most likely to fund a particular loan, which can save the borrower significant time and money.
The SBA 7(a) loan program is designed to provide loans to small businesses in need of flexible underwriting guidelines, extended loan terms, and low down payments.
For existing businesses:
- Historical cash flow sufficient to service requested debt or cash flow ability based on reasonable projections
- Reasonable personal credit of principal borrowers
- Secondary source of repayment- either collateral equal to loan amount or co-signer with reasonable credit and income to repay loan
- Historical earnings sufficient to cover personal living expenses
For start-up businesses (established for less than 2 years):
- Management experience in industry (2 years minimum)
- Capital injection (30% of total project)
- Acceptable business plan, projections and assumptions upon which projections are based
- Maximum loan amount – $2,000,000
- Terms – 7 to 10 years
- Interest rate – prime + 2.25% to 2.75% (variable) Repayment
- Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed
- Maximum loan maturities – 25 years for real estate and equipment, and generally 7 years for working capital
- There is a prepayment penalty for loans with maturities > 15 years.
- To secure the loan, the borrower must pledge available business and personally owned assets. Loans are not declined when inadequate collateral is the only unfavorable factor
- All owners of 20 percent or more are required to personally guarantee the loan. To learn more about the SBA 7(a) program, visit the official SBA website at http://www.sba.gov/.