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The SBA 504 Certified Development Company (CDC)
Program provides long term financing for the purchase of major fixed assets such as real
estate and equipment. With Centinel's affiliated lenders, loan amounts of up to
$5,000,000 with terms of up to 20 years are available. Typically, a 504 project
includes a 1st lien lender loan covering up to 50% of the project cost, a 2nd lien CDC
loan (100% SBA guaranteed debenture) covering up to 40% of the project cost, and a
contribution of at least 10% equity from the small business borrower. A sample
scenario is shown below:
|
| Use of Funds |
Amount |
| Purchase Land |
$600,000 |
| Construct Building |
1,600,000 |
| Purchase Manufacturing Equipment |
300,000 |
| Total Funds Required |
$2,500,000 |
| Less: Down Payment (10%) |
(250,000) |
| Total Loan Request |
$2,250,000 |
In this case, the borrower is making a down payment of $250,000 (of 10% of the total
project cost), the lender is making a 50% 1st lien in the amount of $1,250,000, and the SBA
is providing a 2nd lien in the amount of $1,000,000. The interest rate on the lender
1st lien is variable (tied to prime or the 5 year treasury rate), but the 2nd lien
debenture is sold by the government in the treasury auction and will be fixed for the full
20 year term. This rate is determined at the time of sale, but recent
rates have been in the 6-7% range. On
a combined basis, the borrower obtains an excellent rate.
|
| Bank 1st Lien Note (50% of total project cost) |
$1,250,000 |
6.50% |
| SBA 2nd Lien Debenture (40% of total project cost) |
1,000,000 |
7.00% |
|
Average |
$2,250,000 |
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The maximum SBA debenture amount is generally limited to $1,500,000. However, in
certain cases (i.e. minority owned businesses or loans that meet public
policy goals), borrowers can obtain debenture amounts of up to $2,000,000.
For manufacturers, the debenture amounts can go up $4,000,000. There is
no limit imposed on the bank loan or the borrower down payment, but generally, projects of
up to $5,000,000 are feasible ($10,000,000 for manufacturing businesses). In addition to these permanent loans, out lenders can
provide interim construction financing where necessary.
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