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504 Loan
THE 504 LOAN is 100% guaranteed by the Small Business
Administration (SBA) and is provided through Heartland Business
Capital (HBC). This loan can be used for building construction
and land, building, machinery or equipment acquisition. It
is one portion of a three-party package. The typical package
consists of:
1. A private lender, usually a bank, lends approximately
50% of the project's cost at a market interest rate (typically
variable).
The term is at least 10 years, and the lender receives a first
lien on assets.
2. Heartland Business Capital lends up to 40% of the
project's cost.
HBC charges a fixed interest rate (approximately long-term
treasury rates). The term is either 10 or 20 years. HBC receives
a subordinated lien on assets.
3. The borrower provides at least 10% of the total.
Note: For a start-up business, 90% financing is not available.
We will work with the borrower and a lender through every stage
of the process from qualification and approval to the closing
of the loan. We want to assist businesses in obtaining the
best financing available.
504 LOAN APPLICATION PROCESS
The process of applying for a 504 loan is similar to applying
for a loan at a bank. Here are the steps: First, call your
CDC and talk with us to discuss your project. Second, talk
with your banker to see if your bank is willing to participate
in the bridge loan or permanent loan. Third, submit basic
information regarding the business and the project. Include
the following:
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Last three years of federal tax returns on the business,
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Current balance sheet and income statement on the business (60
days or less old),
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Aging of Accounts Receivable and Accounts Payable that match
up with the current balance sheet,
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Written history of the business, reasons for expansion, brief
business background of owners, etc.,
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Personal balance sheet of any 20% or greater owner of the company
plus most recent federal tax return,
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Copy of the purchase contract.
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WHO IS THE 504 LOAN NOT FOR?
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Marginal or unprofitable businesses
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Businesses that are in need of working capital, inventory, or receivable
financing
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Refinancing
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Real estate held primarily for investment purposes, and firms
whose trade in stock is money (banks, stockbrokers, etc.)
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The CDC's staff will evaluate eligibility and credit feasibility.
Once your bank or other 50% first lien lender has indicated
an interest in financing the 50%, the CDC staff will prepare
a loan memorandum and present it to our Board of Directors
(2 to 3 weeks). If approved, Heartland Business Capital will
present a 504 application to the SBA to acquire its agreement
for guarantee of the CDC's bond (1 week). The time period
from your first call to the CDC to the SBA's approval is generally
3 to 4 weeks. With the SBA's approval to guaranty the CDC's
portion of the project, your bank will lend you up to 90 %
of the project cost to complete the project (bridge loan).
When the project is complete, you will close with the CDC,
and the CDC will wire its money to the bank. From this point
forward, you have two mortgage payments, one to the bank and
the other to the CDC. The CDC services the 504 loan for its
life
Our primary goal is to prepare a complete loan package that will
be approved with minimal delays.
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