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Frequently Asked Questions

Wading through financial jargon and numbers can be complicated at best and nerve-wracking at worst. Here’s some quick and easy answers to your frequently asked questions. If, after reviewing, you still feel like you’re a bit in the dark, give us a call. There’s no question our expert staff can’t handle—no matter how frequently or infrequently it’s been asked.






How long does it take to obtain approval for a 504 loan?

Upon receiving your complete information and documents, your Mountain West Small Business Finance loan officer can pull together your loan package quickly. If the appraisal and environmental reports are in, MWSBF can usually meet the demands of a 45-day escrow. If you bring us into the lending process early we can gauge and discuss with you in-detail the anticipated timing of the loan process. Typically, SBA loans do not take longer to approve than conventional loans.

 


What is the minimum down payment required?

504 loans require a down payment of between 10% and 20%. A 15% down payment is necessary when a business is a start-up enterprise (less than two years old) or when the project property is considered special-purpose. A 20% down payment is required in situations involving both a start-up business and a special-purpose property. Other credit worthiness factors may impact the amount of down payment required.

 


How much does a 504 loan cost?

When your loans close and your SBA 504 loan is funded, you'll incur various fees totaling approximately 2.65% of your loan amount, plus an attorney closing fee of around $2,000. These fees are financed within the debenture loan proceeds so they are not out-of-pocket expenses. Fees are broken down as follows:
• CDC Processing Fee - 1.5% of net debenture amount
• Reserve Deposit Fee - covers loan deficiencies and defrays operating costs of the program of .5% of net debenture amount paid to SBA
• Loan Funding Fee - paid to SBA of .25% of net debenture amount
• Underwriting Fee - paid to private market for selling the debenture
• Attorney Loan Closing Fee - for preparation of loan-closing documents


 


What will be my interest rate on the 504 loan?

The interest rate on the loan will be determined by a market sale of the bond at the time the 504 debenture pool (the pool of 504 loans) is sold and the interest rate will be fixed for the term of the loan. It is this 100% government guarantee that experts predict will enable the bond to be funded at below conventional lending interest rates and on a fixed-rate basis. The effective rate (which includes all ongoing fees) is roughly equal to the 10-year Treasury bill rate when the debenture is sold, plus approximately 2%.
 


Is there a penalty if I prepay my loan?

Yes. However, the amount of the prepayment penalty decreases each year and disappears after year five for a 504 loan with a 10-year maturity and after year 10 for a 504 loan with a 20-year maturity. Here is an example of how the prepayment penalty is calculated:
 
Sample Prepayment Penalty Schedule

SBA 504 Loans have a Prepayment Penalty based on a predetermined schedule, which is based upon the rate of the underlying bond or debenture.

The prepayment schedule for a loan with an underlying debenture rate of 7.25% is as follows:

For a twenty year loan



For a ten year loan



 


Can I personally hold title to Project Property and lease it to my business?

Yes. SBA allows for individuals, trusts, LLCs, corporations or partnerships to hold title to the Project Property so long as it is leased to the Operating Company. The term of the lease must be equal to or greater than the term of the 504 loan.
 


Will I need to personally guarantee the SBA 504 loan?

SBA requires guarantees from all individuals and legal entities that hold a 20% or more ownership interest in either the Project Property or the Operating Company.
 


Will I need to pledge my home as additional collateral?

Not usually. In the majority of projects, the Project Property will be the sole collateral securing an SBA 504 loan. Additional collateral is only required when there is a deficiency in the appraised value of the Project Property or when other serious credit issues are apparent.