108 Loan Program
US Department of Housing and Urban Development (HUD) Section 108 Loan Program
has been established to facilitate larger real estate projects that will result
in the economic and physical revitalization in local municipalities or entitlement
cities. The major goal of this program is to provide jobs and to
maintain and increase the availability of goods and services for
low and moderate income residents. The program will be targeted primarily
to Empowerment Zones, Enterprise Communities, State Enterprise Zones,
Revitalization Zones, and specially identified communities. The LDC
is prepared to offer bridge loans to protect approved repayment
from the proceeds of a Section 108 loan.
Use of Funds: Program funds are available to finance real estate acquisition,
construction or renovation, related costs of fixtures and equipment, and other
project related costs.
Funds may also be used to assemble land as part of project redevelopment,
as part of an effort to attract a business or induce development, develop an
incubator or industrial park. The preferred type of project to be financed
will include owner equity participation and a commercial loan component, as
well as the Section 108 loan.
Eligibility Criteria: Projects must either principally benefit low and moderate
income persons through job creation, job retention or the provision of goods
and services, aid in the elimination prevention of slums and blight, or meet
other community development needs having a particular urgency.
The minimum goal for job creation is one permanent full-time job for every
$35,000 (1:$35,000) in loan proceeds. A minimum of 51% of the jobs must go
to low and moderate income persons.
Loan Amounts: Loan amounts range from $500,000 to $5,000,000. The maximum
108 participation is 30% of the project cost and there must be a minimum owner
equity participation of 10%.
Fees: A loan processing fee of two and a quarter (2.25%) percentage points,
as well as appraisal, title, legal and all other out of pocket expenses related
to loan processing, approval and documentation will be the responsibility of
Rate: The interest rate shall range from a minimum of one percentage point
(1.0%) to a maximum of two and one half percentage points (2.5%) over cost
of funds. Historically, the cost of funds has been based on long term treasury
rates. The actual rate also takes into account the return on investment, cash
flow, public benefit, collateral and equity.
Terms: The maximum loan term shall not exceed 20 years and
will be based on several factors including, but not limited to available cash
flow, collateral, return on investment, equity and use of funds.
Collateral: The primary collateral shall be deeds of trust
on real estate. Additional collateral may be required in the form of personal
guarantees and security interest in equipment.