The SBA 504 Loan Program provided by Wisconsin Business Development is a way to match long-term, fixed rate financing with long term assets. Through the 504 loan program we can help fund the purchase of land, buildings, machinery, equipment, building construction and all associated soft costs i.e. interim interest during construction, attorney, accountant, architect, and appraisal fees, title insurance, etc. We can also help minimize the down payment, allowing the small business to conserve vital working capital to support future sales growth. For an existing business as little as 10% down may be sufficient. Equity in existing land and buildings may also be sufficient to qualify. |
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I. 504 BENEFITS
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- Long-Term Financing, 10 or 20 years
- Very Competitive Fixed Rates
- Second Mortgage lien position
- Minimized Equity Contribution
- Can be used in conjunction with other State and Local Funding Programs
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II. ELIGIBILE BUSINESSES
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- Any for profit business. The only not-for-profit companies eligible for a 504 loan are sheltered workshops.
- Any legal entity: Sole Proprietorship, Partnership, Corporation, LLC, LLP, etc.
- Any type of legitimate business: manufacturing, wholesale, service, professional service, retail or agricultural.
- Net Worth is less than $6 million, ($7.5 million in certain targeted areas).
- Two-year average after-tax profits is less than $2 million ($2.5 million in certain targeted areas).
- Business owner must be s U.S. citizen or resident alien with a green card.
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III. OTHER RESTRICTIONS
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- WBD does not provide interim financing. WBD provides permanent take-out financing when the project is completed and the loan is closed in accordance with SBA/WBD loan covenants and restrictions.
- The maximum loan amount is:
Regular 504 $1.5 million
Public Policy Goal $2.0 million
Small Manufacturer* $4.0 million
*Defined as NAICS Code beginning with 31,32 or 33 with all production facilities in the U.S.
- The minimum 504 loan amount is $50,000.
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IV. GENERAL LOAN STRUCTUREThrough the 504-loan program, we can provide up to 40% of the eligible project costs. The borrower provides an equity injection of 10% to 20% and a private lender provides up to 50% of the project costs.
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| Typical Project Funding |
| Use of Funds |
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Source of Funds |
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| Land |
$180,000 |
Bank |
$625,000 |
50% |
| Building Construction |
$930,000 |
*504 |
$500,000 |
40% |
| Machinery |
$80,000 |
*Equity |
$125,000 |
10% |
| Soft Costs |
$60,000 |
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| Total |
$1,250,000 |
Total |
$1,250,000 |
100% |
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V. 504 ELIGIBLE EXPENDITURES
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- Bullding construction and purchases
- Equipment and machinery purchases
- Building Expansion and Remodeling
- Land Acquisitions
- Leasehold Improvements
- Soft Costs
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VI. INTEREST RATE The rate on the 504 loan is set when the loan is "closed". This typically occurs 90 to 120 days after the completion of construction or the purchase or real estate, machinery, etc. The rate is then fixed for the term of the loan. |
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VII. FEES
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The SBA 504 loan program is self-funding with no subsidy from the federal government. As a result, a portion of the issuing costs and monthly servicing fees for each 504 loan is applied to a loan loss reserve. All of the fees on the SBA 504 loan are added to the loan amount so that the cost can be amortized over the term of the loan. Fees include a guaranty fee paid to the SBA, the underwriter, and closing costs to the local Certified Development Company of between 2.63% and 2.75% depending on the term of the 504 loan, plus a bond counsel fee of $2,500. In addition, the monthly payment will include servicing fees of between .825% and 1.23% annually. Finally, the bank must pay SBA a one-time fee equal to .5% of the principal amount of the bank's permanent, companior term loan, that is in a senior lien position to the SBA 504 loan. |
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VIII. COLLATERAL
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- The 504 loan is typically secured with a subordinate lien on all project assets.
- The SBA requires that the 504 loan must have a security interest in all project assets.
- We can recognize existing prior liens in the case of building expansions and renovations.
- Personal guarantees of all principals owning more than 20% of the company are required.
- If the business is a start-up or the asset being financed is considered single purpose or the credit is unusually risky, additional collateral may be required.
- Key Man life insurance is typically required unless there is strong management succession.
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Customer Identification Program Notice
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