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Section 108 Loan Program
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Section 108 Loan Program


Section 108 Loan Program Description: The 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 the borrower.

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.