504 Program Frequently Asked Questions
What is the 504 loan program?
The 504 loan program provides businesses with financing for major fixed assets such as office buildings, retail buildings, warehouse facilities, machinery and equipment.
Projects are typically financed with two loans
What are the program benefits?
Ninety Percent (90%) Financing – Preserves Working Capital
The 504 program provides ninety percent (90%) financing of the total project cost for most commercial real estate and equipment purchases. Borrowing from Pacific West CDC allows business owners to preserve working capital for business growth.
Below Market Interest Rates
Pacific West CDC offers below market, fixed rates for 20 years. Why settle for variable or higher market rates when you can have piece of mind with a fixed rate?
Longer Loan Amortizations – Reasonable Monthly Payments
20-year loan amortizations allow for smaller monthly payments. By utilizing the combined benefit of a 10% down payment, below market interest rates and longer loan amortizations versus traditional lending, you can minimize the monthly payment and realize the many advantages of owning commercial real estate.
Build Equity in Your Business by Owning vs. Leasing
Owning a building is a terrific way to build equity, stabilize rent payments, and plan for retirement.
Finance Closing and Other Soft Costs
Financing closing and other soft costs into the 504 loan helps keep out-of-pocket expenses to 10% when business owners make the decision to purchase commercial property and only want to spend the minimum amount of cash necessary in order to preserve more capital for other uses.
No Balloon Payments, Calls or Covenants
No balloon payments, calls or negative loan covenants enable borrowers to have more control, more piece of mind and less lender micro-management.
504 Loans are Assumable
If you sell your property in the future, the buyer can assume the loan at today’s historically low interest rates.
What are the eligible use of proceeds?
A small business can use proceeds from an SBA 504 loan for direct expenditures to acquire, construct or convert a facility for company expansion, such as:
Where the value of the land is determined at cost, if acquired within the last two years, or at the appraised fair market value, if owned for more than two years.
Such as grading, paving, landscaping, curb and gutter, etc., although no more than 5% of total project costs can be for "community" improvements.
Purchase of One or More Existing Building(s)
Your business must occupy at least 51% of the total square footage of the four walls of the project building(s).
Conversion, Expansion, or Renovation of One or More Existing Building(s)
Note that the cost of improving a tenant space/spaces to be leased out cannot be included in the SBA 504 financing.
Construction of One or More New Building(s)
Your business must occupy at least 60% of the project, with projections indicating that your business will need some additional space within 3 years and a reasonable intent that the business will occupy 80% of total space within 10 years. SBA 504 financing may NOT be used to improve tenant space with specialized improvements. A contingency reserve for construction cost overruns, not to exceed 10% of construction costs, may be included in the calculation of total project costs for the purposes of a 504 loan application.
Acquire and Install Machinery and Equipment
These assets must have a useful life of at least 10 years and be at a fixed location. Furniture, fixtures and equipment with a useful life of less than 10 years can be included in mixed use projects where these are "essential to and a minor part of" the total SBA 504 financing project.
Professional Fees Directly Attributable and Essential to the Project
Such as title insurance fees, architect fees, engineering fees, any required environmental studies or audits, the cost of a project appraisal, any municipal charges, electricity / gas / water hookup charges, the cost of any survey required to provide clear title, and related legal and accounting fees.
Repayment of Interim Financing Costs
Including points charged or interest paid to a lender during the interim or construction phase of the project.
Does my business qualify?
The SBA 504 program can provide financing for most types of businesses. There are very few business types that are not eligible.
Eligible Uses of an SBA 504 Loan:
A Small Business is Not Eligible if it is:
The Pacific West CDC 504 loan
A STEP-BY-STEP PROCESS
APPLICATION AND APPROVAL
25301 Cabot Road, Suite 214, Laguna Hills, CA 92653 Phone: 949.305.6490 Fax:949.305.6432