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.
The Small Business Administration (SBA) has released SOP 50-10(5)(B), which becomes effective on Oct. 1, 2009. Lenders should familiarize themselves with the updates and how they impact the 504 program.
For a complete copy of the SOP 50-10(5)(B), visit the following:
PDF Version:
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sops_50105b.pdf
Track Changes Version:
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sops_50105b_tracked.pdf
While not all inclusive, the following are some highlights of the updated SOP:
Certified development companies (CDCs) may include experience in the analysis of whether or not a small business is a new business or existing businesses. A revision in SOP 50-10(5)(B) provides CDC options to evaluate business new ownership and debt incurred through ownership change. A CDC must present an explanation of the new owner's experience and explain why any additional debt incurred through ownership change does not directly impact business. If the CDC makes a sufficient case, this can assist the small business to avoid being classified as a start up business which would require an additional 5% equity contribution.
Definitions were added to limit the total federal funds in a 504 project to an amount equal to or less than 50% of the total project.
A finding by the SBA that the franchise agreement is acceptable means there are not control provisions resulting in affiliation between the small business applicant and the franchisor. It does not mean the small business is eligible. Franchise development or master franchise agreements are ineligible and are defined as agreements which provide the developer a geographic area within which to grow additional franchise units and/or income from royalty payments from franchise units within the defined geographic area.
An eighth control factor was added requiring the franchisee to sell real property to the franchisor upon expiration or breach of the franchise agreement.
Deed restrictions as a whole are ineligible except those intended to protect health and safety of occupants. For example, prohibiting use for residential, hospital, daycare, etc., after prior use by gasoline industry is an acceptable restriction.
Procedures to appeal ineligible franchise determinations were added.
Arequirement was added that a CDC loan file must contain documentation that specifically identifies factors which make transaction eligible under the Credit Elsewhere Test. The Third Party Lender letter must include one of the following explanations: loan maturity exceeds Third Party Lender's policy; exceeds Third Party Lender's legal lending or policy limits per customer; collateral does not meet Third Party Lender's policy,
Third Party Lender's policy does not provide loans to applicant's industry or to startups; or any other unique lender policy, which must be specifically documented in the Third Party Lender letter.
The SOP refines documentation required to demonstrate income from passive versus active income sources. Active services must account for more than 50% of revenues to be non-passive, even in a startup business. If the operating company (OC) does not separate income sources, direct expenses for services will be used to evaluate the passive and active revenue percentage.
The SBA clarified that the 10% energy reduction applies to existing OCs only. Also, if an existing business is moving to a new location and can demonstrate the new location will generate 10% energy savings, the project is eligible.
Land is counted at cost if bought less than two years prior to application or at fair market value based upon appraisal if owned for two or more years.
American Recovery and Reinvestment Act (ARRA) language was added on permissible debt refinancing for expansion projects. The SOP clarifies that in calculating “Substantial Benefit,” the interest rate from the most recent debenture funding is used for the 504 loan. Loans with seasonal payments meet the “substantial benefit” test if there is a 10% improvement in the installment when calculated by averaging all payments of the most recent 12-month period from the date of application; and loans with balloon payments meet the “substantial benefit” test.
A personal guaranty is required for all 401(k) owners regardless of ownership percentage. Members of ESOPs are not required to personally guaranty except for the 20% owners in OC. OC/EPC structure cannot be used when using 401(k) or ESOP guarantee waivers.
For any new construction or substantial renovation project of greater than or equal to 33% of improvement costs, CDCs must obtain a certification from an appraiser that the project was competed with only minor deviations, if any, from original plans/specs. If the appraiser does not provide this certification, the CDC cannot close the 504 Loan without the Sacramento Loan Processing Center's (SLPC) prior written approval.
This change provides CDCs with guidance regarding appraisals that have a value of 90% or less than the total project cost. If additional collateral or investment is not available for the 10% shortfall, but the CDC can demonstrate, in its analysis, that the OC has strong, consistent cash flow to support the debt, then the SLPC can approve the appraisal and the CDC can close the 504 Loan.
A clarification was added to require that all 504 projects must comply with environmental review and investigation steps required by SOP 50-10(5)(B) regardless of the CDC's approval method.
Any project where the small business NAICS code beginning with 447 (gas station with or without convenience store) will require the CDC to start with a Phase I and, if applicable, also comply with provisions in Appendix 5 of SOP 50-10(5)(B).
Any daycare, child care and nursery school buildings built in 1980 or before must have testing for lead based paint and lead testing for water with results submitted to and approved by the SBA.
Requires Phase I because of NAICS code in Appendix 4 and, if in operation for more than five years, also requires Phase II due to chemicals used.
Changed requirement for no adverse change determination to be completed and documented within file from seven to 14 days prior to requesting file to be shipped to field office for closing.
Inserted ongoing annual fee (paid by borrowers) of 0.389% for FY 2010.
For more information on Florida First Capital and its 504 loan program, visit www.ffcfc.com, email us at insider@ffcfc.com or call 888.320.5504.
