How to Get Approved for an SBA CDC 504 Loan
Alternative Business Capital can help you get approved for an SBA CDC 504 Loan by providing you the information the financial institution, non-bank lender and the small business administration (SBA) need to make a decision in your favor. We went beyond the published information, to provide some inside guidelines to help you become better prepared. Less than Perfect Credit is OK.
Qualifications
- Must be a for-profit company (Corporation, LLC, Partnership, Sole Proprietorship)
- We highly recommend (Limited Liability Company or Corporation)
- Have a net worth of less than $7 million
- This is not $7 million in sales, assets or projections
- Show ater-tax profits during the last years, an average under $2.5 million
- It pays to have a good CPA
- Lenders prefer existing businesses with history
- If start-up, lender want management experience
- Owners must be US citizen or registered aliens with green card
Requirements
- Approximately 10% capital contribution from the owner(s) (existing businesses 3/yrs+)
- 20% capital contribution for start-ups or businesses under 3 years
- Alternative Business Capital will show you how to creatively meet this need
- Approximately 50% of total funds will come from a bank or private lender
- Loan is usually secured by 1st mortgage and personal guarantee
- Alternative Business Capital will help find a lender interested in your project, through our large resource of commerical banks, non-bank lenders and private investors
- Approximately 40% of the funds will come an SBA loan
- Loan is usually secured by 2nd mortgage and personal guarantee
- Alternative Business Capital match you with lenders familiar with CDC 504 loans
- Pledge that at least one job is to created or retained for every $50,000 from CDC contribution
- A complete, comprehensive business plan should show this
- Alternative Business Capital will review your business plan and make recommendations that is in the best interest of your company and satisfy our lending partners
- Show evidence of an existing cash flow sufficient to repay the additional debt, secured by collateral
- We highly recommend the financials are prepared by a qualified CPA
- Pay processing and legal fees
- We highly recommend using a Designated Attorney who is knowledgeable with CDC 504 Loans. We will help your local Attorney, if necessary.
- Alternative Business Capital has a network of Designated Attorneys through the U.S. who are knowledgeable and qualified to assist you.
- Personal Credit Score: 600+ FICO/Beacon
- Not a requirement, but highly suggested by lenders
Use of CDC 504 Funds
The 504 loan is designed for "brick and mortar" type expenditures, such as;
- new construction and continguency fund
- purchase existing buildings
- Leasehold improvements
- purchase land and improvements, such as paving streets, utilities, parking lots and landscaping
- renovation of building or converting existing facilities
- purchase heavy duty machinery and equipment that has a useful life of 10 years or more
- Business Acquisition & Expansion
- Partner Buyouts, Start-ups (experienced only) & Turn-Arounds
- Soft costs directly connected to the project, such as, consultant (ABC), legal, accounting, survey, architect, engineering, environmental, appraisal, title search, permits fees, etc.
Not Eligible
- Not-for-profit businesses, organizations or religions
- Financial Services (insurance, loan packaging, banks, finance companies)
- Real Estate Investment or speculative businesses
- Businesses located in a foreign country or owned by aliens
- Government owned entities, political or lobby activities
- No Illegal Businesses, pyramid plan, multi-level marketing (MLM), cooperatives, sexual nature
- Persons of Poor Character (poor credit or convicted felons or on probation)
- Person or business previously defaulted on a Federal loan
Not Permitted
- Working Capital Loan (we have other programs available)
- Inventory Loan (check our other financial programs)
- Refinancing (Debt or Equity) - Let's talk about other options
Loan Cost & Fees
The rate on the SBA portion of the 504 loan is set when the CDC sells the bond to fund your loan. The rate is then fixed for the loan term. 504 Bonds are amortized securities.
- Interest Rate:
- Variable and Fixed Rate Plans (based on project and lender's requirements)
- SBA CDC Rates are based on current treasury rates
- The effective annual percentage rate (APR) will include program and guaranty fees
- Lender's loan portion is usually prime, plus 2-3 points.
- Even with all the cost involved with a CDC 504 loan program, the blended rate makes the project affordable to you
- Bankers qualifies for CRA credits, pass the savings to you, lower their risk
- Loan Terms:
- Loans are self liquidating for 10 or 20 years
- Most lenders will lend on 15-20 year term and a 20 year payout
- Prepayment Penalty:
- Declining Scale (depend on lender)
- Application Fee: $500 (one-time, non-refundable)
- Loan packaging fee: varies based on lender
- Success Fee based on loan size
(ABC points never exceed 3%)
- Success Fee is paid upon loan funding
- SBA Guaranty fee: 1.75% - 2.75% of the loan amount
- Fees can be financed in the loan
Repayment is made by ACH debit from your checking accounting on the first of each month
Paperwork
Alternative Business Capital team of professionals will investigate and evaluate your company. The selected CDC and Bank partner will draw credit reports, check bank and trade references, visit your company and assess your credit ability and character.
- Signed application and agreement with Alternative Business Capital
- Complete, Comprehensive Business and Project Plans
- 3 years of historical financial statements
- 3 years of federal tax returns on company
- 3 years of financial projections
- personal resume on owners and key managers
- personal financial statement (assets and liabilities) on the owners
- copy of contract of sale
- proof of citizenship
If you don't have all these documents, Alternative Business Capital will help get these items prepared for submission.
Take the Next Step
- Contact Alternative Business Capital
- We will send you a confidentiality agreement
- Once signed, tell us about your project, idea or expansion plans
- If we come to an agreement, we will assign a project manager to you
- Our goal is the successful funding of your project
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