FOCUS:
To assist healthy and expanding eligible small commercial and industrial business concerns. Start-ups are eligible on a case basis. Project may be located anywhere in Missouri.
HOW IT WORKS:
The 504 Program provides a maximum of 40% financing of an eligible project. A bank selected by the applicant typically finances 50% of the project and takes a senior position on the collateral. The borrower provides at least 10%. The bank portion is financed at conventional rates and terms. A typical loan structure is outlined below.
LOAN STRUCTURE:
SOURCE SHARE LIEN RATE TERM
Bank 50% 1st Floating 7 Yrs min. (M & E)
10 Yrs min. (Real Estate)
504 40% 2nd Fixed 10 Yrs (M & E)
20 Yrs (Real Estate)
Borrower 10%
For a new business, the borrower must provide 15%, reducing the 504 share to 35%. For a limited or single-purpose building or structure, the borrower must provide 15%, reducing the 504 share to 35%. If the project meets both conditions, the borrower must provide 20%, reducing the 504 share to 30%. A new business is one in existence for less than 2 years
MINIMUM/MAXIMUM LOAN:
The minimum 504 Loan is $50,000, and the maximum is $1,500,000 for projects meeting the job creation or community development goal. The maximum is $2,000,000 for those projects fulfilling a public policy goal (i.e. minority-owned, veteran-owned, woman-owned, rural development, business district revitalization, and others). For small manufacturing projects the maximum is $4,000,000. The 504 net portion cannot exceed 40% of the total project costs and cannot exceed the Bank's share.
ELIGIBLE PROJECT COST:
Fixed Assets, including acquisition of land and buildings; construction and/or renovation; equipment and furnishings; plus interim interest and professional fees for appraisals, surveying, accounting, engineering, and architectural services.
ELIGIBLE BORROWER:
A for-profit operating company (structured as a corporation, partnership, proprietorship, limited liability company, etc.) with a Net Worth not to exceed $7.5 million or less than $2.5 million average Net Profit after Taxes during the previous two years. An eligible passive company may be the borrower but must meet the same guidelines and must use the loan proceeds to assist the eligible operating company or companies in the project. Joint borrowers are also eligible if both meet the guidelines. Project must be located in Missouri.
JOB REQUIREMENT:
For a regular or public policy project, the company being financed must reasonably demonstrate that it will create one job for each $50,000 of 504 debenture amount over a period of two years from project completion. For a small manufacturing project, for every $100,000 of 504 debenture, one job must be created.
LOAN COSTS/FEES AT CLOSING:
The actual amount of the 504 loan is the amount of the 504 net loan proceeds needed for the project plus fees totaling approximately 3%, which are added to the 504 share of the project cost and capitalized and amortized as part of the loan.
Legal and closing costs are paid by the Borrower at closing. Up to a maximum of $2500 may be included in the loan debenture for legal costs and reimbursed to the borrower.
TERMS/INTEREST RATES:
Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available.
PREPAYMENT:
Prepayment is allowed only on the full amount of the outstanding loan; no partial prepayments. A premium is assessed during the first half of the term on a declining scale, disappearing after 5 or 10 years on a 10- or 20-year loan respectively.
PROCESS:
The loan application approval process from CPDC loan screening committee recommendation through CPDC board resolution and final SBA authorization takes about 30 days. To start the process, an applicant must submit the following items to CPDC:
- Preliminary Application (CPDC Form)
- Brief history and background of small business and proposed project
- 2 years of historical financial statements and tax returns
- Interim financial statements current within 60 days
- 2 years of projections
- Personal financial statements & tax returns (principals with 20% or more ownership)
- Bank commitment letter
- Appraisal and Environmental Assessment, if available
Since the 504 portion of the financing is not disbursed until after completion of the project, the bank typically provides interim financing to cover both its own and the 504 share during the construction or acquisition phase. The 504 debenture (bond) issued by the Clay/Platte Development Corporation is guaranteed by SBA and sold in the private bond market. After sale, funds are disbursed to pay down the first mortgage.
ADVANTAGES:
- Low down payment (typically 10%) makes 504 financing possible if conventional financing is not
- Long term available (20 years on up to 40% of the project)
- Market interest rate fixed for full term provides stable future occupancy costs
- Reduced project risk due to hedge rate provided by Bank "variable" and 504 "fixed"
- Increased lender security; Bank holds first lien with only 50% of loan to value
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LOCAL PROVIDERS:
Please visit with one of our local SBA approved banks for additional information, or to assist you with your application:
| • | Citizens Bank & Trust | 2041 South Commerce Drive | 903-2265 |
| • | First Missouri National Bank | 505 South Sam Barr Drive | 903-9010 |
| • | Kearney Commercial Bank | 100 West 92 Highway | 628-6050 |
| | 950 West 92 Highway | 628-6050 |
| • | Kearney Trust Company | 310 West 92 Highway | 628-6666 |
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*Information about the SBA 504 Loan Program was taken from the Midwest Small Business Finance website at www.simplymoreloans.com.
