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504 Program's Flexibility Allows Lenders to Realize Sales Goals

Feb 2008

In today's ever-changing economic times, the 504 loan program is proving to be a resilient and viable financing alternative for small business lenders. Statistically, over the past three fiscal years, the number of Small Business Administration (SBA) 504 loans increased 15.44%, while the number of 7(a) loans rose only 3.8%, according to the SBA.

In terms of dollar volume, the 504 loan program increased 23.6% during that time, while the 7(a) actually decreased by 6.2%. The 7(a) program is down over $900 million, whereas the 504 program is up nearly $1.3 billion, according to the SBA.

In Florida last fiscal year, Florida First Capital Finance Corporation (FFCFC) alone distributed more than 41% ($389,997,227) of the state's total 504 dollars ($1,058,056,736).

“The robust growth of the 504 program can be attributed to its ability to adapt and fit the needs of a changing economic environment, thus providing lenders with a competitive edge equal to none,” said Lamar Nash, FFCFC senior vice president.

More and more, lenders are finding the 504 program relevant because of its distributed credit structure. Under the program, lenders get a 50% loan-to-value first lien on the asset purchased. Florida First Capital provides SBA backed financing up to 40% of the project cost, thus providing liquidity to the program. The borrower's down payment is limited to 10% (in most cases).

“The 504 program allows for a balance of loan-to-value ratios in accordance with efforts of lenders to strengthen their portfolios by holding loans that are both profitable and secure,” said Nash.

Eligible projects under the 504 program include for-profit small businesses desiring to purchase real estate and improvements; construct new or renovate existing facilities; and/or purchase long-life machinery and equipment. Maturities are fixed for 10 or 20 years. Fees and other costs associated with the loan are financed in the loan.

The value of the 504 program is further evidenced by an active secondary market. “Lenders may sell the first mortgage on the secondary market for substantial premium income and preserved liquidity,” noted Nash.

“In short, the 504 program allows lenders to meet or exceed their sales goals while maintaining the integrity of their institution's credit policies,” concluded Nash.

For more information on the FFCFC 504 loan program, visit www.ffcfc.com or call 888.320.5504.