A loan structure to keep a company strong
The SBA 504 loan program provides businesses with long-term, below-market fixed-rate, subordinated loans to purchase real estate, build, expand and renovate or make leasehold improvements to buildings or purchase machinery and equipment. The program requires only a small cash down-payment thereby preserving the business's working capital. The purpose of the 504 loan program is to create or retain jobs in growing small or mid-sized firms.
Chesapeake provides 504 financing by issuing a SBA-guaranteed debenture for up to 40% of the total cost of the project. A commercial lender selected by the borrower (or referred by Chesapeake) provides financing for at least 50% of the project. The borrower provides the remaining 10% in the form of equity or subordinated debt. For new businesses and some special purpose buildings, the minimum investment form the borrower increases to 15% or 20%.
The maximum amount of 504 financing which Chesapeake can provide is $5,000,000 (up to $5.5 million for qualifying green projects) and the minimum is $200,000. There are no restrictions on the total project size.
An example of a typical structure is financing provided by Chesapeake to a family amusement center in Westminster, MD with laser tag, mini glo-golf, bumper cars, batting cages and attractions. The project is the purchase of their property and upgrading their facilities for growth. The uses and sources for the project were:
Typical Loan Term
|Private Lender||SBA 504||Applicant|
|Percent of project||50||40||10%|
|Collateral||1st mortgage||2nd mortgage|
|Dollar amount||No limit||$100,000 - $5 million|
|Interest rate||Market rate||Below market & fixed|
|Real estate/equip.||10-20 years||20-25 years|
|Equipment only||5-7 years||10 years|