Questions & Answers
Does Preferred Lending Partners loan money for working capital?
Unfortunately no. The SBA 504 program is specifically designed to assist businesses in the purchase and funding of real estate and large capital equipment. However, you may be eligible to have a companion 7(a)/Working capital loan through another lending institution.
What is included in fixed asset acquisition?
Purchase of land (It needs to be used as part of business operations), purchase or construction of a building. Modernization, renovation, restoration of a building including leasehold improvements. Purchase of machinery and equipment which has a minimum useful life of 10 years.
Is it difficult to apply?
No way! When applying for an SBA loan – as with any loan – you are asked to fill out an application. Our Loan Application Packet is easy to complete, includes all necessary government forms and provides a checklist of items needed to simplify the process. Once the application is received we will do all of the analysis, packaging, and communication with SBA. Our goal is to make the process simple and clear for the borrower and the primary lending institution. If you would like us to work directly with your CPA we are happy to do so.
How many jobs must be created to meet the SBA requirements?
At least one (1) job must be created or retained for every $65,000 of SBA 504 debenture funds issued.
When is a higher equity injection required?
Equity of 15-20% is required for businesses considered to be new businesses (defined as less than 2 years of business tax returns) and for businesses considered “special purpose” by SBA such as carwashes, hotels, and golf courses.
How much can be borrowed?
Up to 90% of the total project cost or appraised value of the property, whichever is less. The SBA Maximum is $5,000,000. Manufacturers and certain green sustainable projects may receive up to $5,500,000 PER PROJECT from the SBA 504 program.
Do borrowers have to have a primary lender to participate in the SBA 504 program? Can Preferred refer me to a 1st lender?
Yes, a primary lender is required. Preferred’s staff would be happy to assist you by identifying qualified SBA lenders in the borrower’s area and based on the borrowers preferences.
How much of a building can be leased to other tenants?
If purchasing an existing building, 49% is able to be leased (51% must be owner occupied). For a new construction, up to 40% may be leased (60% must be owner occupied). It is important to note however that lease income cannot be counted towards a business’s cash flow when underwriting the SBA 504 loan.
What businesses are eligible?
So many businesses are eligible for an SBA 504 loan that it’s easier to talk about what companies are NOT eligible. Those ineligible companies include – not-for-profit businesses, business engaged in lending, businesses located in a foreign country and any business involved in the marijuana industry to name a few. For more details on if your business is eligible contact the Preferred Lending Partners office.
What are the prepayment guidelines and restrictions?
The SBA 504 loan may be prepaid, however there is a pre-payment penalty for the firs 10 years of the loan. The bank loan generally can be prepaid according to terms negotiated between the bank and borrower.
How does a market funded SBA 504 loan compare to a federal government funded 7(a) loan?
Both are SBA guaranteed loans. The SBA 504 loan is a low down payment, fixed-rate, long-term loan to assist a growing business to acquire a larger facility or equipment. While the SBA 7(a) loan can also be used to finance those terms, the down payment is generally higher and the interest rate is variable and fluctuates with an interest rate index. Hence, the total cost of a SBA 7(a) loan to the borrower can be significantly higher than the cost of a SBA 504 loan. Also 7(a) loans can finance working capital and other ineligible items the 504 cannot. Therefore sometimes a 504 loan and 7(a) companion loan make the most sense based on individual borrower needs. We at Preferred Lending will help evaluate this with you.