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504 ACE
Small Business Administration 504 Loan
Section 108 Loan Program
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Small Business Administration 504 Loan


Small Business LoansDescription: The objective of the Small Business Administration (SBA) 504 loan program is urban economic development and job creation through expansion of the nation's small businesses. This program combines the guarantee authority of the SBA with the capital formation abilities of both commercial banks and public finance markets. The 504 loan Program is established to provide long term fixed-asset financing. SBA's 504 loan resources are generated by issuing government-guaranteed debentures, which are pooled monthly and sold through a certificate mechanism to the public market.

Use of Funds: Funds may be used for commercial/industrial real estate acquisition, construction or renovation, leasehold improvements, and purchase of equipment with a life of 15 years.

Eligibility Criteria: To be eligible, a business must meet the following: (1) have at least a three year operating history (2) a tangible net worth of less than $6 million (3) a previous two-year average annual net profit of less than $2 million (4) occupy a minimum of 51% of the space of an existing building or 67% if a new building is constructed (5) there must be sufficient cash flow on a historic basis to cover projected debt service and (6) Borrower must have an acceptable credit history. Non-profit companies are not eligible.

One new job must be created for every $35,000 of 504 loan proceeds.

Loan Amounts: Loan amounts range from $50,000 to $750,000 or $1 million for projects meeting one SBA's public policy goals which include: business district revitalization, expansion of exports and expansion of minority business development. The maximum 504 participation is 40% of the project cost and there must be a minimum owner equity injection of 10%. The bank or private lender finances the remaining 50%.

Fees: Loan fees are approximately 3% of the loan amount plus $2,000 for legal fees.

Rate: Fixed rate determined at the time of the debenture sale (approximately 1% over the comparable term Treasury Market Rate and includes 1/2% annual servicing fee).

Term: The maximum term shall not exceed 20 years on real estate loans and 10 years on equipment/machinery loans. 504 loans are fully amortized.

Collateral: The primary collateral shall be a second deed of trust on real estate and/or security interest in equipment or machinery. Personal guarantees will also be required.