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| Fees and Interest Rate |
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FEESThe 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 program servicing and 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. A sample is shown below: Finally, the first mortgage lender must pay SBA a one-time fee equal to .5% of the principal amount of the it's permanent, companion term loan, that is in a senior lien position to the SBA 504 loan.
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| Sample Loan Structure |
| Sample Project Cost |
Private Lender |
SBA 504 |
Borrower's Contribution |
Total |
| $ of Funding |
$625,000 |
$500,000 |
$125,000 |
$1,250,000 |
| % of Participation |
50% |
40% |
10% |
100% |
| Interest Rate |
Variable or Fixed |
Fixed |
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| Real Estate Term |
10+ years |
20 years |
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| Equipment Terms |
7 years |
10 years |
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- Maximum 504 funding limit is $1,000,000 with potential limit of $1,300,000 if the project meets certain community or public policy goals.
- Maximum 504 participation limit is 40%. Participation is reduced and borrower's contribution is increased if the project is a "start-up" business or a "special purpose" business. If either of these classifications exist, the 504 is reduced to a 35% participation. If both exist, the 504 participation is reduced to 30%
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The gross debenture amount is equal to the amount provided for project financing, administrative costs, and legal fees to close the loan. The gross debenture amount is only issued in round $1,000 amounts. The borrwer receives a cash payment at funding to effect this rounding.
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| Sample Fees |
| Administrative Costs |
Dollars |
% |
| SBA 504 Portion of Project Cost |
$500,000 |
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| SBA Guarantee fee |
$2,500 |
.5% |
| Funding Fee |
$1,250 |
.25% |
| CDC Processing Fee |
$7,500 |
1.50% |
| Underwriter's Fee |
$2,050 |
.41% |
| Total Administrative Costs |
$13,300 |
2.66% |
| Legal Fee |
$2,500 |
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| Payment to Borrower (to round debenture to 000 amount) |
$200 |
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| Gross Debenture |
$516,000 |
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In addition to loan costs included in the debenture, the borrower may be required to pay for title, environmental or other associated project fees.
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| Sample Interest Rate Calculation |
| Gross Debenture |
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$516,000 |
| Interest rate calculation: May |
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| Note rate: |
5.57% |
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| CDC/SBA Servicing Fees |
.625% |
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| Loan Loss Reserve (Borrower's Fee) |
.021% |
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| Central Servicing Agent Fee |
.100% |
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| Initial Rate |
6.31% |
6.31% |
| Term |
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240 months |
| Payment |
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$3,789.66 |
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Notes:
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- The note rate for each loan is determined at the loan sale date. Rates cannot be determined before the actual loan sale date.
- The CDC/SBA servicing rate must be a minimum of .625 but may be up to 2.0%. The actual cost of borrowing will be dependent upon the service fee charged.
- The note rate reflects the cost of obtaining funds at the monthly bond offering on Wall Street. The fee amounts are paid to servicing agents. These fees are then recalculated at five year intervals based upon the principal balance on the note at that time. As the principal balance on the note decreases during each five year interval, the fee amount remains constant during that same period. The effective interest rate calculation results in a slightly higher amount than the auction rate on the note. The effective interest rate for a 20 year term on loans issued was 6.463% for May, 2008.Current Rate
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Loans approved in fiscal year 2008 (October 1, 2007 to September 30, 2008) utilize a .021 borrower's fee. Examples shown reflect CDC/SBA fees of .625% and 1.0%.
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