Most businesses, approximately 98%, meet the basic eligibility requirements for SBA 504 financing. SBA 504 loans are designed to assist growing businesses to finance commercial real estate for their uses or to purchase machine and equipment with a life of 10 years or more.
SEED was certified in late 1982 by the U.S. Small Business Administration (SBA) to package loans under the SBA 504 Program. SEED packages 504 loans throughout Massachusetts, and most of Rhode Island.
SEED is an SBA Accredited Lender. This designation enables SEED to obtain final SBA approval on 504 loans in three to five business days. SEED is one of the top SBA 504 lenders in the region.
The SBA 504 Program provides long term, low fixed interest rates, 90 percent financing for small businesses undertaking real estate or machinery and equipment acquisition, projects ranging from $200,000 to $13.75 million or more. Most small businesses are eligible.
The SBA 504 Program provides a maximum of 40 percent financing of an eligible project. A lending institution selected by the applicant finances 50 percent of the project and takes first position on the equity. The applicant provides the remaining ten percent. The lending institution’s portion is financed at conventional rates and terms. See loan structure below:
Sample Loan Structure
Participant: Lending Institution (First Mortgage)
Rate: Prime +
Maturity: 7 Years for M & E; 10 Years for Real Estate at a minimum
Participant: SEED 504 Debenture (Second Mortgage)
Rate: 5-6% Fixed (Effective Rate)
Maturity: 10 Years for M & E; 20 Yrs for Real Estate
Participant: Applicant 10% *
* 15% for start-up business or special purpose building.
SEED’s minimum amount on a 504 debenture is $120,000 (a total project of $300,000). The maximum is $5.5 million for manufacturing businesses and $5 million for all others. On projects smaller than $300,000, SEED evaluates the benefits to the client, and may use its other loan programs.
For-profit corporations, partnerships or proprietorships; industrial, commercial or service businesses; tangible net worth not in excess of $15 million; less than $5 million average net profit after taxes during previous two years.
Acquisition of land and buildings; construction and/or renovation; leasehold improvements; equipment and furnishings; refinancing of related project debt up to 50% of new project; interim interest; and professional fees for appraisals, surveying, accounting, engineering and architectural services.
SEED Corporation can package 504 loans throughout Massachusetts and all of Rhode Island (except Washington County).
SBA requires that the company being financed demonstrate that it will create one job for each $65,000 of SBA investment over a period of two years. In a project of $500,000 with an SBA share of $200,000, the company would have to create three new jobs over a period of two years. The job requirement may be waived, if other economic development goals are met.
SEED’s approval process takes two weeks. Generally, it takes 30 days or less to meet the needs of the client, but full approval including the letter of authorization from the U.S. Small Business Administration, can take longer. SEED and if the client has the needed preliminary information:
If the participating lending institution agrees, however, the client can proceed with the project as soon as SEED approves the application. This approval can take two to four weeks depending on when the client approaches SEED and if the client has the needed preliminary information:
- A signed Purchase & Sale Agreement, if applicable;
- Historical financial statements and IRS returns for 3 years;
- Interim financial statement no older than 120 days; and
- Personal financial statements and IRS returns for the last two years for principals with 20% or more ownership
The 504 Program offers the following advantages:
1. Ninety-percent (90%) Financing Ninety percent (90%) financing of the total project costs for commercial real estate purchases. Utilizing our 504 loan program allows business owners to preserve more capital for other uses and gain the highest cash-on-cash return for their capital.
2. Below Market Interest Rates
Businesses can save on interest expenses by not accepting market interest rates when below market, fixed interest rates are available with our 504 loan program.
3. Less Impact on Cash Flow
When putting in ten percent (10%) equity, getting below market interest rates and having the benefits of longer loan amortizations versus traditional lending, business owners’ cash flow is less impacted and they can still realize all the advantages of purchasing or constructing commercial real estate.>
4. Up to 40% Reduction in Real Estate Expenses
Owning commercial real estate instead of leasing typically has an immediate reduction of up to forty percent (40%) on real estate expenses, plus the added benefit of converting the third largest expense facing businesses into a fixed cost that does not increase by an average of three and a half percent (3.5%) each year like with renting.>
5. Finance Closing and Other Soft Costs
Financing closing and other soft costs with our 504 loan helps keep out-of-pocket expenses to a true ten percent (10%) minimum when business owners make the decision to purchase commercial property and only want to spend the minimum amount of cash necessary in order to preserve more capital for other uses.>
6. No Balloon Payments, Calls or Covenants
No balloon payments, calls or negative loan covenants enable borrowers to have more control, more peace of mind and less lender micro-management.>
7. Specialist Make the Process Simple
Dealing with a specialist in 504 loan financing makes the experience of buying commercial property simple and hassle-free. Twenty-four hour pre-approvals and four day commitments are another example of this.>
8. Assumable Loans
Future sales of properties financed by our 504 loans are benefited by having assumable mortgages at today’s historically low interest rates.
9. No Disruption of Existing Banking Relationship
Our 504 loans can be made without disrupting your existing banking relationship because we do not require other banking products or services in conjunction with our 504 loans. We are a non-depository financial institution that only finances commercial real estate and/or equipment; we do not offer other banking products or services.
10. It’s the Overall Best Deal for You
Our program provides small and mid-sized businesses advantages previously only known to much larger enterprises.
One time packaging fees total 2.65% of the SBA 504 loan amount (not the total financing). These fees are rolled into the SBA 504 loan. In addition, there are servicing fees to SEED and SBA. These fees are included in the effective fixed rate quoted by SEED. SEED’s servicing fees are lower than other 504 lenders. Overall, SEED offers the most cost effective financing.
For more information, please contact SEED Corp.
SEED is an equal opportunity lender and business assistance provider.