In this article, you will learn how SBA 504 loan packages are structured.

It’s quite simple, actually. 

The CDC, or Certified Development Company, is going to be in charge of coordinating and arranging the structure of the funding package for the parties involved. Generally speaking, it works like this:

The SBA 504 loan is a package of three different funding sources. 

An SBA 504 loan consists of a conventional first mortgage, in the form of a commercial loan, typically for fifty percent of the project cost, from a third-party lender, such as a bank or credit union. This portion of the loan typically has a fixed interest rate, but it can be a variable rate. It’s really up to you and the financial institution you have chosen. Repayment of this loan may be over a few years or twenty or more years.

The SBA-backed portion of the SBA 504 loan will be a second mortgage, financing up to forty percent of eligible project costs. Generally, these loans are for 10-, 20-, and 25-year terms.

The remaining ten percent will be your small business owner contribution. Yes, the Small Business Administration wants you to “put some skin in the game” in terms of your own money in terms of “borrower equity.”

Under certain circumstances, you may be required to contribute fifteen or even twenty percent of the total project cost, depending upon whether your project is a startup or special-purpose entity. 

If one or the other, you usually are expected to contribute fifteen percent of your own funds in terms of this “equity injection.” 

However, if your project is considered both a startup and special-purpose, then you will most likely be required to contribute a full twenty percent.

If you need assistance with any of this, we encourage you to consult with one of our experienced commercial loan advisors today.