SBA 504 Loan Interest Rates
Official monthly SBA 504 effective interest rate tables can be found at Eagle Compliance LLC. 25- and 20-year term loans fund every month; 10-year term loans fund every other month. Effective interest rates are inclusive of servicing fees, which are subject to credit risk of the applicant.
A - Yes. If the SBA business loan involves acquisition, renovation, or reconstruction of an existing building, the borrower may lease up to 49% of the project property long term (note that the percentage of space leased cannot be rounded down).
If the project is for new construction, the borrower may lease long term up to 20% of the rentable property in the project to one or more tenants if the borrower immediately occupies at least 60% of the building(s), and plans to occupy within three years some of the remaining space not immediately occupied and not leased long term, and plans to occupy all of the remaining space not leased long term within 10 years. Note - that within 10 years, the small business must occupy 80% of the space and can only permanently lease 20% of the space.
A - Loan proceeds may be used for the purchase of an existing combined residential, rental space and business building, provided:
* Such residential and rental space combined is 49% or less of the total space; and
* The location is appropriate and conducive to the success of the business and alternative facilities that do not contain residential nor rental space are not reasonably available.
Loan proceeds may not be used for the construction of any combined residential, rental space and business type building, except in the following case:
* Where the owner or the business manager resides in the same building because of the nature or location of the business. In this case, residential space of up to 20% of the total can be allowed.
A - No, except remodeling or conversion expenses required for space occupied by the small business which will incidentally improve the rental or residential space (such as replacing a roof or roof repair, a heating system for a whole building, windows and exterior facade work, and so on) are acceptable if the benefit to the rental or residential space is reasonable and cannot be avoided.
The costs of interior finishing of space (e.g., carpeting, painting, light fixtures, etc.) to be leased out to another business are not eligible project costs. Third-party loan proceeds used to renovate the leased or residential space can not count towards the 504 first mortgage requirement or the borrower's contribution. These costs also cannot be included in a superior lien position to the SBA financing.
A - Circumstances may justify allowing the small business a period of time after closing of the SBA loan to comply with the aforementioned occupancy requirements. For example, a pre-existing lease may have a few more months to run. The SBA may judge what a reasonable time is for the small business to meet the occupancy requirements given the circumstances of the business and real estate conditions in the community. In no case may the small business have more than one year to meet occupancy requirements. In cases where this exception applies, the borrower must provide the SBA, at time of application, a copy of all pre-existing leases, which must show the applicants ability to comply with the occupancy requirements within one year of SBA approval.
Note - for new construction, the borrower must meet occupancy requirements immediately.
A - Occupancy is determined based on the single parcel of project property. If there are buildings on multiple parcels, the occupancy requirement applies separately to each of the parcels and is not based on consolidated occupancy.
Example 1: A single parcels contains two buildings (one commercial and one residential). The commercial building represents 80% of the useable square footage of both buildings.
Is this eligible? Yes, because both buildings are on a single parcel, the business does not have to occupy at least 51% of the residential space.
Example 2: A project consists of two buildings (one commercial and one residential). The seller refuses to sell one property without the sale of the other property. The buildings are located on separate parcels. The commercial building represents 80% of the useable square footage of both buildings.
Is this eligible? No, because each building is located on a separate parcel, the residential building, despite seller's demands to sell both parcels together, is not eligible for financing through the 504 loan program. The borrower must obtain separate financing for the purchase of the residential building. Note - storage in the residential or rental building is not allowable usage of space to bypass this requirement.
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