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SBA 504 Loans

The best kept secret of Commercial Real Estate financing.

SBA 504 Loan Basics

On this website you’ll find information on why we think the SBA 504 loan is the best option for entrepreneurial business owners who are looking to buy, build, renovate, or refinance their owner-occupied commercial real estate property.

The acquisition of owner-occupied commercial real estate by a small business utilizing a SBA 504 Loan is funded by three parties: a Third Party Lender (in this case, Opus Bank), the Small Business Administration through a Certified Development Company, and the
small business who contributes a minimum of 10% as equity.

90% Graphic
Business (10%)
CDC (40%)
Bank (50%)
These percentages may vary based on project size and type.
Advantages
Up to 90% Financing
Higher loan-to-value ratios allowed by SBA 504 loans make qualifying easier. You can borrow up to 90% of your financing needs, preserving valuable operating cash.
Fixed, Below Market Interest Rates
Your business can save on interest expense by NOT accepting
market interest rates when fixed, below market rates are available.
Longer Loan Amortizations
Longer loan amortizations allow for smaller monthly payments,
lowering impact on your cash flow.
Finance Soft Costs
Financing soft costs helps to keep your out-of-pocket expenses
to a minimum.
Uses
Buy Commercial Property
Buy your own owner-occupied commercial and industrial property
with MINIMAL investment.
Finance Building Improvements
Renovate your commercial building after purchase to suit your business needs.
Expand and Refinance
Expand your owner-occupied commercial or industrial building by refinancing your current loan or refinance your owner-occupied CRE with attractive terms.
Purchase Large Machinery or Equipment for Long Term Use
Augment your business operation with related heavy machinery or equipment purchase.
SBA 504 Topics
Please click on the adjacent topics for specific information on the most frequently asked questions about the SBA 504 loan program. Don’t hesitate to contact us with your questions or to discuss a specific project. We welcome your calls and are ready to help you at anytime!
Contact our SBA 504 Banker
SBA 504 Loan Benefits
There are many reasons for small business owners to choose the SBA 504 loan. Below, you can read the six most important benefits of this type of commercial real estate financing for entrepreneurial small business owners.
Ninety-percent (90%) Loan-to-Cost Financing
An SBA 504 loan can provide up to ninety-percent (90%) financing of the total project cost, which may include the land, construction/renovations, soft costs, and closing costs.Conventional commercial loans will require
two to three times the equity (20-30% down), so with an SBA 504 Loan a small business owner can preserve more capital, which they can use to grow their business.
Long-Term, Below-Market, Fixed Interest Rates
Variable interest rates don’t make sense when it comes to small business commercial property financing. The ability to get long-term (up to 25 years), below-market, and fixed interest rates makes it possible for business owners to save on interest expenses.
Longer Loan Amortizations
Longer loan amortizations allow for smaller monthly payments, which have less impact on business' cash flow.
Typically Closes Within 60 Days
We specialize in this type of financing and we share your sense of urgency when working on your projects. We understand the commercial real estate purchase process and will stay on track with your contract’s contingencies and deadlines. We want to get each of our clients to the closing table so they can start enjoying the benefits of commercial property ownership as soon as possible. We know you have a sense of urgency and we share it.
Specialists Make the Process Simple
We know that this type of financing may seem complicated, and honestly, it can be at times. That is why so few lenders will lead with the SBA 504 Loan. But, when you work with an expert that specializes in SBA 504 Loans, like us, it can make all the difference for small business owners.
Designed to Help Business Owners Thrive
As you can see, the SBA 504 loan offers many advantages that aren’t available with conventional commercial financing. Small business owners who are serious about owning commercial property to grow their businesses and plan for retirement should consider this type of specialized financing. After all, it was designed specifically for this purpose!
SBA 504 vs Conventional Loan
The SBA 504 loan allows small businesses to put less money down and take advantage of longer below-market fixed interest rates, making owning commercial real estate an option for many small businesses that otherwise might not have the opportunity. In addition to all of the benefits that come from simply owning instead of renting, the SBA 504 Loan program allows business owners to use their excess capital to grow their businesses instead of putting it into non-income-producing assets, such as real estate. The following is a comparison of the financing variables typically available to small business owners who want to acquire/construct their commercial real estate.
Opus Bank or Third Party Lender
Conventional Bank Loan
Loan Amount
Up to 90% financing of the total project cost (inclusive of land, construction/renovations, soft costs, and closing costs).
75% to 80% of the appraised value or purchase price, whichever is less.
Equity
As little as 10% of the total project cost down.
20 to 25% plus closing and soft costs.
Term
1st Mortgage: 5, 10, 15 or 20 years.
2nd Mortgage: 10, 20, or 25 years.
Frequently 5, 7, 10 or 15 years, then balloons.
Amortization
1st Mortgage: 10-25 years.
2nd Mortgage: 10, 20, or 25 years.
5-25 years.
Pricing
1st Mortgage: Competitive fixed rates.
2nd Mortgage: Usually 0.5% to 0.75% less than competitive rates and fixed for up to 25 years.
Competitive fixed or variable rates. Usually not assumable.
Personal Guarantees
Required.
Usually required.
Prepayment Penalty
Usually 5 year descending structure: 5,4,3,2,1 and 1% of 2nd mortgage.
Usually 1.0% of loan amount.
Personal Credit Scores
Generally greater than 650.
Generally greater than 650.
SBA 504 Loan Myths
Below are some of the most common myths and misconceptions regarding SBA loans, along with our explanation of the truth. If, after reading this list, you still have some questions about the SBA 504 loan or SBA loans in general, don’t hesitate to contact us.
Myth: The SBA lending process takes too long and is inefficient.
Fact: The SBA lending process can seem like it takes forever, especially when working with a lender that doesn't specialize in the 504 loan program. Someone that closes a few SBA loans a year (if that) will not know the ins and outs of the program. We know how to properly structure an SBA loan and we’ve worked with many Certified Development Companies (the SBA’s representatives for the loans) so we know from experience what needs to be done to get your loan approved and closed in a timely manner.
Myth: SBA loans have too much paperwork.
Fact: Again, this might be an issue of working with a lender that doesn’t know what will be required for an SBA 504 loan. In most cases, the required documentation for SBA loan approval closely matches that of an 80 percent loan-to-value conventional commercial loan. Working with an expert that specializes in the 504 loan helps streamline the process on the other 20 percent required. Some borrowers have even found this to be less paperwork than what they faced when they refinanced their home loan.
Myth: SBA loan rates are higher than conventional lending.
Fact: The SBA 504 loans consists of two loans. The first mortgage, typically financing 50% of the total project cost, provided by a third party lender is a conventional loan at market rates. The government-guaranteed second mortgage (40% of the total project cost) is at below-market rates.  This means the SBA 504 loan rates are often the least-expensive money available for entrepreneurial small business owners who want to own their commercial real estate.
Myth: All SBA lenders are the same.
Fact: Any lender can provide a 504 loan, but it takes experience and expertise to do it right every time. Choose a lender that has the proven track record of successful 504 loan closings and happy customers.
SBA 504 Debt Refinancing
In December 2015, Congress approved a permanent SBA 504 debt refinance program. They did this by reinstating the previously successful program that was temporary from 2011 and 2012 that allowed small business owners then, and now you, to refinance their high-interest debt and take advantage of benefits offered only by SBA 504 loans.

Here are some of the key aspects of the program:
  • While the commercial loan(s) being refinanced must be at least two years old, the refinance may include more than one loan as long as they are secured to the same eligible fixed asset.
  • The existing loan(s) must be current on all payments due in the previous 12 months and evidence of this must be presented.
  • The business must be operating for at least 2 years with no ownership changes.
  • All SBA 504 program eligibility requirements, including 51% owner-occupancy requirement, must be met.
  • For refinance-only projects, the maximum loan-to-value is 90%. Cash-out for eligible working capital has lower loan-to-value limits.
  • Cash-out refinancing to cover eligible business operating expenses is permitted, but there are certain restrictions.
  • Existing SBA and USDA loans are not eligible to be refinanced under this program.
    There are many nuances with the SBA 504 Debt Refinance program and we’re more than happy to discuss them with you. Give us a call so we can learn about your specific project in detail.
Is your company eligible for an SBA 504 Loan?
To be eligible for an SBA 504 Loan, a small business must meet the following eligibility requirements:
  • The business must be a for-profit, non-publicly traded company.
  • Ownership must be comprised of 51% U.S. citizens or registered aliens with green card.
  • The business must do business in the United States or its possessions.
  • The business must be a sole proprietorship, partnership, limited liability company, or corporation.
  • The business must occupy at least 51% of the space to be bought.
  • The business’s tangible net worth cannot exceed $15 million.
  • The business’s average net income after Federal income taxes (excluding carry-over losses) for the two full fiscal years prior to application cannot exceed $5 million.
  • Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
Not all borrowers and uses of loan proceeds meet the SBA eligibility requirements, but if your business satisfies the above requirements, contact us to discuss your specific project.
SBA 504 Loans For Construction Use
The SBA 504 Loan offers many advantages to small businesses owners who are looking to renovate or expand their owner-occupied commercial real estate. Below are some of the most important:
  • The SBA 504 loan allows small business owners to put less money down than with conventional financing. That allows entrepreneurial business owners to retain more of their capital for use in other parts of their business during the construction process.
  • The SBA 504 loan allows for business owners to finance construction costs, closing costs, and soft costs, including architectural fees, engineering fees, surveys, title insurance, and more within the loan. This also allows business owners to retain more of their capital in hand for other expenses during the construction process.
  • Opus Bank finances tenant improvements if needed as part of the CRE purchase transaction.
Of course, there are many more reasons why the SBA 504 loan is the smart choice for business owners who are looking to renovate or improve their owner-occupied real estate and we encourage you to continue reading below why we should be on your shortlist of small business 504 lenders. If you have any specific questions or wish to discuss your or your client's specific project contact us today!
SBA 504 Loan Rates Explained
The SBA 504 loan is actually 2 loans that combine to finance up to 90% of the project costs.  The first mortgage loan is provided by a third party lender for typically 50% of the project cost, and a second mortgage loan is made on an interim basis and then funded by the CSC/SBA on a permanent basis.  As there are 2 loans, there are 2 rates of interest.
Longer Loan Amortizations - CDC Current Rates
10-year
4.351%
20-year
3.978%
25-year
4.086%
20-year refi
4.011%
SBA 504 vs 7(a) Loan
The Small Business Administration has two different programs. The 504, the program we specialize in, and the 7(a). The 7(a) is still the SBA’s most commonly used loan and is usually the one people think they refer to when they generically refer to an “SBA Loan”.

The following is a detailed comparison of the two loan programs so you can decide which loan program is right for you:
SBA 504
SBA 7(a)
What is primarily financed?
Owner-occupied commercial real estate and equipment over a long loan term.
Working capital, inventory, equipment, stock, or any other business asset and/or debt to be refinanced.
Why is it typically used?
Up to 90% loan-to-cost financing; 25-year fixed rate on second mortgage.
Ability to enhance credit, offer longer terms than allowable conventionally, or mitigate a collateral shortfall.
Loan Structure
First mortgage made by and serviced by a third-party lender; interim second mortgage originated by lender, subsequently taken out by CDC/SBA Loan, and serviced by the CDC.
Single loan extended and serviced by a lender, which SBA guarantees.
Loan Size
Maximum 1st mortgage: $250,000 – $20 million
Maximum 2nd mortgage: $200,000 – $5 million*
* $5.5 million for green projects.
Up to $5 million
Interest Rate
1st Mortgage: typical fixed rate conventional pricing 2nd Mortgage: below-market  fixed interest rate
Typically floating at Prime+1% or higher with fixed rates about 1% higher than floating rates.
Term
1st Mortgage: 10 years minimum, with 10–25 year amortization.
2nd Mortgage: 10,20, and 25 years, fully amortizing
Up to 25 years, fully amortizing for real estate.
Up to 10 years, fully amortizing for all other uses.
Down Payment
Minimum 10% of total project cost (real estate, construction/renovation, equipment, closing costs, soft costs)
Typically 15%
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Understanding the SBA 504 Loan Structure
Because the SBA 504 loan is structured differently than conventional commercial real estate loans, it can be confusing at first glance. However, there is a reason for its structure and it is very beneficial for small business owners.
The Borrower
Eligible borrowers contribute 10-20%* of total project costs in cash  or equity.
CDC (Certified Development Co.)
The CDC is a non-profit Corporation, regulated by the SBA, created to lend to small businesses in order to facilitate economic development.

The CDC obtains SBA approval for the loans and funds their portion through a SBA guaranteed debenture covering up to $5.5 Million or up to 40%* of the total project cost.
Participating Lender (Opus Bank)
A Regulated Bank or non-bank lender that participates in the 504 Loan Program typically provides 50% of total project cost through a first lien mortgage.* The participating lender also typically provides a short-term interim loan for the CDC portion until the CDC debenture funds.
*These percentages may vary based on project size and type.
SBA 504 Loan Structure Example:
Total Project Cost
$2,000,000
Equity / Downpayment
$200,000
2nd Mortgage / SBA Portion / CDC Portion
$800,000
1st Mortgage / Third Party Lender / Opus Bank
$1,000,000
10% Total Project Cost (Borrower Injection)
Borrower provides 10% of the project’s total cost depending on project type
40% of the Total Project Cost (CDC/SBA)
Below Market, Fixed Rate Loan with an SBA Guarantee
  • 10, 20, 25 year amortization options.
  • No balloons, calls, or covenants.
  • Fixed interest rate at below market rate.
  • Fixed for the entire terms up to 25 years.
  • Assumable loan.
50% of the Total Project Cost (Opus Bank)
Conventional Loan at Market Rates
  • Up to 25-year amortization.
  • Multiple fixed rate choices.
  • Term options.

The Bottom Line

The SBA 504 loan preserves capital and maximizes cash flow for small business owners. It really is the smart choice for small business owners who want to own their commercial real estate.
Contact our SBA 504 Banker Today

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Irvine, CA 92612

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