Frequently Asked Questions
If your question is not answered here, please feel free to contact us via email or the online form.
What is the Financing Structure?
Typical 504 Financing Structure
Source Project Costs Lien Funding Limits Rate Term Real Estate Term M&E
Financial Institution 50 percent 1st No Limit Market 10 years or longer 7 years or longer
SBA 504 40 percent 2nd up to $5M ($5.5M for energy or manufacturing) Fixed 20 years 10 years
Borrower 10 percent n/a n/a n/a n/a n/a

To fund the 504 portion of the loan, Capital Partners issues an Authorization for Debenture Guarantee that is fully guaranteed by the SBA and sold on the private bond market.

Capital Partners will work with you and the borrower to make the application process as easy as possible. If your customer meets prequalification requirements, Capital Partners will prepare all the necessary paperwork to obtain an SBA loan approval. To find out more about the SBA 504 Loan Program, please contact our office.

What are the Down Payment Requirements?

Typically, the small business contributes 10% of the project costs. If the business is a startup (when Management has less than 2 years of ownership experience), the down payment increases to 15%. If the loan will finance a single use property, the down payment increases to 15%. If the project is for a single use property being financed for a start-up business, the down payment increases to 20%.

What Businesses are eligible?

The applicant must be a for-profit business whose business net worth is less than $15 million and whose after tax income is $5 million or less, on average, for the last two years.

What projects are eligible and what are the costs?

504 financing is used to acquire, construct, renovate or expand an owner occupied facility. It can also be used to acquire major machinery and equipment with a useful life of at least 10 years.

In addition to the acquisition and construction costs, the "soft costs" (appraisals, environmental, construction interest, closing costs, etc.) can also be financed in the 504 loan. Attorney fees cannot be financed. This allows the business to preserve working capital that will be needed in the larger facility.

What are the occupancy requirements?
Occupancy Requirements
Financing of: Initial Occupancy Occupancy After 10 Years Allowable Permanent Lease
Existing Building 51% 51% 49%
New Construction 60% 80% 20%
What is the project size range?

Project sizes typically range from $200,000 to $14,000,000 with the 504 loan size ranging from $80,000 to $5,000,000 (up to $5,500,000 for energy projects/manufacturers meeting SBA defined NAICS codes). The first trust loan can exceed 50% of the project total, which enables larger companies to take advantage of the benefits of the 504 loan up to the maximum amount allowed.

What is the Banker's Role?

The first mortgage lender processes its loan as it would any conventional loan request. Capital Partners and the bank can work together to collect documents from the borrower, and Capital Partners can share its credit underwriting with the bank. Once approved, the bank will utilize its own loan documents to close their loan.

Appraisals and environmental reports should be ordered naming all parties (the bank, Capital Partners, and the SBA) with copies provided to Capital Partners as received.

Generally, the bank provides "interim" or "bridge" financing while Capital Partners's 504 loan is a permanent take-out loan. Thus, the bank would provide the full 90% financing up front during the construction, renovation, or closing period based on the 504 commitment to take out the applicable portion of the interim financing once the business occupies the property.

When the 504 loan closes, the bank will be asked to provide copies of its loan documents, provide copies of its draw schedules (for construction or renovation projects), certify that there has been no adverse change in the borrower's financial condition, and agree to various other provisions such as to provide 60 days advance written notice of default prior to foreclosure proceedings.

At Capital Partners, we strive to be the 504 expert and we ensure that all SBA requirements are met so our lending partners can focus on the bank portion of the loan without having to memorize all of SBA 504 Loan intricacies.

What are the advantages of an SBA 504 Loan?
Advantages for commercial lenders
  • Reduce risk on projects - resulting in 50% loan-to-value-ratio
  • Fixed or variable rate option on bank loan
  • Meets economic development and community reinvestment goals
  • Keeps the bank competitive by offering attractive financing for its clients
Advantages for small business
  • Low down payment - helps conserve valuable operating capital
  • Below market fixed rate - avoids future rate fluctuations, keeps costs of loan low
  • Long-term - brings debt service in line with cash flow generated by business
What is a CDC?

A Certified Development Company (CDC) finances business expansion through the purchase or development of a building and/or major equipment via the SBA 504 loan program. CDCs are certified by the SBA to offer the SBA 504 Loan Program. Capital Partners's professional staff will work directly with you to tailor a financing package that meets program guidelines and the credit capacity of your business.

What is an SBA 504 Loan?

The United States Small Business Administration (SBA) enables growing businesses to secure long-term, fixed-rate financing for commercial industrial real estate and/or major machinery and equipment through the SBA 504 Loan Program. The program is designed to promote local economic development by helping healthy, growing businesses finance the acquisition of long-term fixed assets, including land, buildings, and major machinery and equipment. The 504 Program gives small business owners access to the same low-cost, fixed-rate, long-term financing that large businesses have through the bond markets.

Why should I consider an SBA 504 loan?

The SBA 504 loan Program offers many benefits to small businesses. The benefits include low down payment (allowing the small business to preserve working capital), longer terms, and larger loan amounts than may be available through a conventional loan. In most cases, the borrower's down payment will be 10% of project costs. If an appraisal deems a building as single purpose or if the business has less than 2 years of operating experience, additional injection (down payment) will be required. In addition, interest rates on the SBA 504 Loan will be below market and the rate will be fixed for the loan term.

Who is Eligible?

Independently-owned, for-profit businesses that meet 504 project requirements are eligible. Net worth must be $15 million or less, and the average net profits after taxes cannot exceed $5 million per year for the previous two years.

How long do you have to be in business to qualify?

There is no requirement regarding length of time in business; however, start-up businesses are subject to additional injection (down payment).

Can the building be owned by an entity other than the operating company?

Yes, a real estate holding company can own the building. However, in this scenario, the operating company, the real estate holding entity, and all individuals with 20% or more interest must guarantee the loan.

If the operating company is leasing the building from a real estate holding entity, what documentation is needed?
Leases

If the Borrower is different from the Operating Company, there must be a lease between the Borrower and the Operating Company for 100% of the property being financed with a 504 loan. If there are third-party tenant(s), the sublease(s) must be between the operating company and the third party tenant(s).

Subordination Agreements

Every lease and sublease on the property must be made subordinate (or junior) to the 504 Deed of Secure Debt. The Borrower and the Operating Company must sign the Subordination Agreement related to their lease. The Operating Company and any subtenants must sign the Subordination Agreement related to their lease.

How much can I borrow?

A CDC financed project can be of any size, but the SBA backed portion of the loan is usually limited to 40% or $5,000,000. However, in some instances, the SBA backed portion can go up to $5,500,000. The minimum debenture is $25,000 with typical projects ranging in size from $200,000 to $14 million.

How can my 504 funds be used?

504 loans may be used for:

  • Land or building acquisition
  • Building construction or remodeling
  • Acquisition of fixtures and heavy machinery

The qualifying business must become the primary occupant of the property financed. Proceeds cannot be used for working capital or costs unrelated to the project.

What costs can be financed?

All costs that are directly attributable to the purchase or construction project can be financed, assuming that the appraisal is high enough.

What fees are involved?
  • SBA Fee: 2.67% of SBA portion of loan.
  • Bank Fees: Negotiated with bank, but typically 1% or 2% on bank loan.
  • ALL SBA fees and most bank fees are financed.
What are the collateral requirements? Will I have to pledge my home?

The subject property to be financed will be the collateral. Capital Partners does not typically take personal residences as collateral. However, on a case-by-case basis, Capital Partners may exercise the option to take additional collateral.

How is my interest rate calculated, and can I lock in the rate today?

The interest rate on the SBA loan is tied to the 5 or 10 year U.S. Treasury rate in effect on the date of funding and is fixed for the loan term. The rate cannot be locked in prior to funding.

Is my loan assumable?

Yes, SBA 504 loans are fully assumable. Contact us for more info

Can my equity injection (down payment) be borrowed?

Preferably the borrower will put at least 10% of their own funds into the project. The down payment can be borrowed, but owners must show that there is sufficient income to service the debt.

Is there a prepayment penalty?

Yes. For a 20 year term loan, there is a declining prepayment penalty in the first 10 years on the SBA portion of your loan. For a 10 year term loan there is a declining prepayment penalty in the first 5 years on the SBA portion of your loan.

Can I refinance a building I already own?

No, unless the project includes a significant expansion of the building.

Can you recommend a good bank to use?

Yes. Capital Partners can work with any lender that offers the SBA 504 Loan Program.

Is there a lot of paper work?

The paper work is comparable to that of any business loan.

What is the Turnaround Time?

We strive to give a 72-hour loan pre-qualification. The procedure from a completed application submission to disbursement of funds takes approximately 30 to 90 days, depending on the complexity of the project and the loan.


What is a Quit Claim, Cancellation of Deed or Modification the bank wants me to sign and have notarized?

When the Capital Partners/SBA portion of your loan funds, the bank must cancel the interim Deed to Secure Debt or modify the permanent Deed to Secure Debt or Note through a recording with the county recorder. It is important that this recording be completed because the Title on your building will reflect the monies previously owed until the Cancellation, Quit claim or Modification are filed. The bank is required to follow-up on these document recordings and Capital Partners does monitor the bank throughout this process in your best interest.

Can I Obtain another SBA 504 Loan?

Many 504 borrowers have obtained second or third SBA 504 Loans to finance additional locations, expand existing locations, or purchase major machinery and equipment. Subsequent applications are simplified since Capital Partners already has an active file of information, and therefore your loan request can usually be processed with a minimum of paperwork. Contact us to find out about your eligibility to obtain another SBA 504 Loan.

When is my payment due?

Payments are due on the first business day of each month, and are made by automatic debit. Late fees are due if payment is received after the 15th of the month.

From what bank account are the payments being debited?

In the loan closing process, you designated an account from which payments will be debited, by filling out a form and providing a voided check. The account number of your designated account is referenced in the Notification of Funding letter which was provided shortly after your loan funded. This letter also included your payment amount, effective note of interest, and general ongoing requirements.

Can I change my automatic payment to a new account?

You may change the bank account for purposes of the automatic payment at any time; however, please note that changes must be received in our office by the 15th of the month in order to become effective for the following month's payment. Payments must be made by automatic debit. Checks are not accepted.

Please call us at 770.205.9800 for more info.

Who is Wells Fargo Bank, N.A. Corporate Trust Service?

Wells Fargo Bank, N.A. Corporate Trust Service is our Central Servicing Agent (CSA). This corporation handles the payment processing and loan accounting for all SBA 504 Loans. You will notice a notation on your bank statements referencing Wells Fargo Bank, N.A. Corporate Trust Service followed by your loan number.

If you have any questions or problems about payments, please contact Capital Partners. Wells Fargo Bank, N.A. Corporate Trust Service does not handle any client phone calls. Any correspondence regarding your loan payments should be directed through Capital Partners.

What are the SBA, CSA and CDC fees shown on the amortization schedule?

SBA (Small Business Administration). The fee paid to SBA represents a guarantee fee required under the Code of Federal Regulations (CFR) to cover a loss reserve for the program.

CSA (Central Servicing Agent). The CSA is also known as Wells Fargo Bank, N.A. Corporate Trust Service. The CSA fee covers charges by Wells Fargo Bank, N.A. Corporate Trust Service to handle payment processing and loan accounting. Wells Fargo Bank, N.A. Corporate Trust Service is appointed by the SBA to accept monthly payments, hold the monthly payments until the semi-annual debenture payment is due, pay the semi-annual debenture payments, and calculate and accept full payments on the SBA 504 Loan.

CDC (Certified Development Company) and for purposes of this website also known as Capital Partners. The CDC is required to service the loan on behalf of the SBA by enforcing the terms of the loan documents. The CDC fee is set forth in the Code of Federal Regulations to pay for the servicing of SBA 504 Loans and cannot be waived. Capital Partners charges only the minimum fee allowed.

Why is my payment higher than the payment amount shown on the note?

Servicing Fees. Your total payment includes the Note payment and the three (3) fees payable to the SBA, CSA and CDC (see FAQ #7). Every five (5) years, the fees are adjusted downward and payment is decreased. Please refer to your Amortization Schedule for balance, payment, and fee information.

What is my Note Rate & Effective Rate?

Your Note Rate is shown on the Note and Amortization Schedule included with your loan documents. The rate stated on the Note does not include the SBA, CSA and CDC servicing fees (see FAQ #7); however, the "Effective Rate" as referenced in your Notification of Funding letter does include these fees. Although the interest rate on the Note is fixed, payments are lowered every 5 years as the fees are adjusted.

Why is the rate on my note higher (or lower) than estimated during the loan process?

The rate on the loan is determined approximately one week prior to the date the loan is funded. Your loan is pooled with all of the other SBA 504 Loans funded in the same month, and is then sold in the form of debentures on the bond market. Debentures are priced based on current market conditions. Rates typically follow the trends of US Treasury rates, although rates on 504 debentures are higher.

How can I find out my loan balance?

Check the loan Amortization Schedule provided to you after your loan funded. If you can't locate the Amortization Schedule, contact our office for a copy. Please note that the loan balance is not the same as the loan payoff amount.

How can I find out the amount of interest paid on my loan?

Annually, a Form 1098 is provided to the borrowing entity stating the interest paid on the loan for the most recent calendar year. Alternatively, you can check the Loan Amortization Schedule provided with your other loan documents. If you have had late payments or a deferment of payment(s), the information in your amortization schedule may not apply and you should refer to Form 1098 or contact us for correct information.

Can I Prepay my loan?

Yes, loans are funded via the sale of bonds which requires a slightly different payoff process than a typical bank loan. Partial prepayments are not accepted. A possible alternative to loan payoff may be loan assumption. Please contact us right away if you are considering loan payoff or loan assumption.

Prepayment of an SBA 504 Loan:

Capital Partners must have 45 days written notice that the loan is going to prepay. Payoff dates for SBA 504 Loans are the 3rd Thursday of each month.

504 loans must be prepaid on the 3rd Thursday of any month.

All deposits and payoffs must be made by wire transfer.

Prepayment premiums may apply. Prepayment premium levels decline at six (6) month intervals based upon loan funding month; and are eliminated once half of the term has passed (i.e., after 10 years, there is no prepayment premium for a 20 year loan. After 5 years, there is no prepayment premium for a 10 year loan).

What are the insurance requirements on my building?

You must carry insurance levels on your building as noted in your SBA 504 Loan Authorization. The U.S. Small Business Administration must be shown as 2nd Mortgagee and Loss Payee with Form 438 BFU, CP218, or a comparable form. Evidence of insurance must also show the amount of coverage on the building and include replacement cost coverage. Please show the 2nd mortgagee and loss payee on the insurance policy as follows:

U.S. Small Business Administration
& Capital Partners CDC
5400 Laurel Springs Parkway, Bldg 800, Ste 802
Suwanee, GA 30024

How do I know how much building coverage I need?

A general rule of thumb to determine the required dollar amount of coverage needed is to subtract the "Land value" from the "As completed value" found in your appraisal.

Does my Business Personal Property need to be insured also?

It is good practice to protect your investments; however, SBA only requires the loss payable form - such as 438 BFU, CP1218, or comparable form - for business personal property when Security Agreement and UCC Fincancing Statement are included and filed as part of your collateral with your SBA 504 Loan.

I changed my insurance agent. Do I need to let you know?

Yes, we would appreciate the information about your new agent. Helpful information includes your agent's name, address, phone number, fax number, if available, and your policy number.

Who pays the Property Taxes on the real estate?

You are responsible for paying the property taxes. No escrow for property tax payments or impound account on the real estate has been included with your loan. Please check with the County Tax Collector or Assessor in which your property is located to determine when your real property taxes are due.

Why are financial statements required?

The submission of annual financial statements and/or tax returns are part of the loan commitment. Please submit your annual business financial statements and/or tax returns to our office no later than three (3) months after your fiscal year end.

Why am I asked for an employee job count?

A requirement of the SBA 504 Loan was to create and/or retain a certain number of jobs. Capital Partners is required by the US Small Business Administration to obtain this information at the two year anniversary of the loan funding date.