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SBA 504 Q&A: Annual Loan Requirements for Borrowers

Feb 2021

Q: My Small Business Administration (504) loan has funded so all that I’m obligated to do now is keep my loan current, correct?

A: While keeping your SBA 504 loan current is certainly a very important component of the terms of your note, that is only one of a number of critical things that a 504 borrower is required to do according to the conditions of the loan authorization for debenture guarantee and the 504 note.

Outlined in the loan authorization are the ongoing conditions and terms that are required of the borrower, some of which are as follows:

1. Insurance Requirements: All insurance coverage that must be purchased and maintained for the life of the loan. Evidence of current coverage must be provided to Florida First Capital at all times, to include a copy of the actual policy showing the required SBA 2nd mortgagee clauses.

2. Borrower Certification: At closing, the borrower(s) certifies that they will:

a. Furnish year-end statements to Florida First Capital within 120 days of fiscal year-end;

b. Furnish additional financial statements or reports whenever Florida First Capital requests them;

c. Pay all federal, state and local taxes, including income, payroll, sales and real estate (property) taxes of the business when due. Florida First Capital requires evidence of payment of property taxes on an annual basis.

d. Occupy, at ALL times during the term of the 504 loan, the required occupancy percentage of the property according to the terms of the loan authorization.

e. The borrower will NOT:

i. Make any distribution of company assets that will adversely impact the financial condition of the borrower;

ii. Make ownership structure or interest changes in the business without prior written approval by the SBA. The borrower may have one or more changes in ownership without SBA approval so long as the cumulative change over the term of the note is less than 5%. These changes should be provided to Florida First Capital.

iii. Sell, lease, pledge, encumber or otherwise dispose of any property or assets, except in the ordinary course of business.

Other than making payments in a timely manner, the note mirrors the requirements of the authorization and also defines the terms of default as being a failure to make a payment when due under the note or failing to do anything required by the note and other loan documents.

Florida First Capital encourages all 504 loan borrowers to acquaint themselves with the terms and conditions of the authorization and note as well as all other loan documentation and to reach out to us with any questions.

If you have a question for our SBA 504 loan experts, email us at info@ffcfc.com.