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, financing needs over
$10,000,000 with terms of up to 20-25 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 (generally tied to prime) or fixed for a 3 to 10 year period.
The lender 1st lien can have a maximum term of 25 years. The 2nd lien
debenture is sold by the government in the treasury auction at a fixed rate for a full 20
year term. This rate is determined at the time of sale, but recent rates have been
in the 5-6% range. On a combined basis, the borrower obtains an excellent rate.
|
| Bank 1st Lien Note (50% of total project cost) |
$1,250,000 |
5.75% |
| SBA 2nd Lien Debenture (40% of total project cost) |
1,000,000 |
5.50% |
|
Average |
$2,250,000 |
|
The maximum SBA debenture amount is generally limited to $5,000,000. However, in
eligible energy conservation and/or manufacturing projects, borrowers can obtain debenture
amounts of up to $5,500,000. There is no limit imposed on the bank loan or the
borrower down payment, but generally, very larger projects are feasible. In addition
to these permanent loans, our lenders can provide interim construction financing where
necessary.
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