SBA 504 Structure

The SBA 504 Loan will involve three parties: a small business owner, a Certified Development Company (like Colorado Lending Source), and a private sector lender (usually a bank). 

1. A bank/private sector lender will typically provide 50% of the financing for the project. This portion of the loan cannot be less than the SBA 504 portion. The lender will take the First Mortgage position on the assets being financed and will charge a market interest rate on this portion of the loan. The lender is required to provide a minimum term of 10 years on a 20-year SBA 504 loan, and 7 years on a 10-years SBA 504 loan. Because the SBA 504 portion of the loan will be in a second mortgage position, the risk to the bank is minimized. This allows them to more competitively position their own market terms and rates on SBA 504 projects.
    
2. The SBA 504 loan is limited to 40% of the total project cost, and must be provided by a *Certified Development Company (like Colorado Lending Source). This portion of the loan has a maximum dollar amount of $1.5MM and a minimum of $25K and will take the Second Mortgage position.
   • The maximum can be increased to $2MM for rural based, women, veteran or minority owned businesses, projects located in enterprise zones, exporters, or LEED certified buildings.
   • Additionally, manufacturers can receive as much as $4MM in financing on the SBA 504 portion of the loan.
   • $4MM is also available to those businesses reducing their existing energy consumption by at least 10% and/or businesses creating renewable energy sources for use by the building (i.e. solar, wind, geothermal, etc…).

   Certified Development Companies raise the money for our share of the loan through the sale of a semiannual coupon bond on the New York market. This bond is 100% guaranteed by the U.S. Small Business Administration, making it attractive to potential buyers in the securities market. The market then sets a fixed interest rate of 20-years on commercial real estate and 10-years on equipment loans in the month that the bond is sold.

   *Colorado Lending Source is one of approximately 250 Certified Development Companies (CDC) in operation throughout the United States
   

3. The small business is required to put 10% down on the project.  This can increase to 15% if the business is a start-up or intends to operate out of a single purpose facility.  Or 20% if the business is both a start-up and intends to operate out of a single purpose facility.