Check the S.O.P.: Q&A

Q – Are there any restrictions on the participation (% of transaction) for first mortgage lenders in the 504 program?

A – Yes, in certain situations such as “start ups” and “special purpose facilities” the first mortgage lender must be at least 50% participation, regardless of whether or not the borrower increases his/her equity injection. Any increase in the borrower’s contribution, under these circumstances, reduces the CDC’s participation. On all other loans (existing business and multipurpose facilities), the first mortgage lender may be equal or greater than the CDC, but never less. In these cases, should the borrower’s equity injection increase, that would go toward reducing the CDC’s or lender participation.

However, the typical and recommended structure for 504 transactions remains at:

• 10% Borrower/Business
• 40% Certified Development Company (CDC)
• 50% Bank/First Mortgage Lender