You may want to consider these steps before your bank offers the SBA 504 loan product. These steps will help you become as informed as possible about the product, the process and may help mitigate surprises for you and your borrowers.
Understand the basic structure and parties to a typical SBA 504 loan project. It is different from both a conventional business loan structure and a typical SBA or USDA guaranteed loan project. The SBA 504 loan product was designed as an economic development (job creation) product for established, growing small to medium sized businesses. While start ups are now allowed, be cautious.
Here is a typical SBA 504 loan project, structure and benefits:
The Borrower (injects at least 10% of the financing as equity)
SBA Intermediary – Six Bridges Capital Corporation (6BCC) (provides up to 40% of the financing through a SBA 504 debenture.)
1st REM/UCC Bank Lender (provides 50% or more of the financing)
|Standard||New Business or Special Purpose||Both New and Special Purpose|
|1st REM/UCC Lender||50%||50%||50%|
The true trick to a smooth SBA 504 project is using a Certified Development Company that will take the lead and truly knows the ropes as they will be the primary contact with SBA. 6 Bridges Capital Corporation knows the SBA 504 loan product inside out. We understand the process and have established (and positive) relationships with SBA key personnel. 6 Bridges Capital Corporation provides our participating senior lenders with:
The key to getting started with offering the SBA 504 loan product is to educate your staff on the product parameters. The most efficient (and easier) way is to take a 101 course on the topic.
We suppose the “scariest” part of the entire transaction for the 1st REM/UCC lender is the part in the process where you have to carry up to 90% of the deal until the 6 Bridges Capital Corporation debenture sells and pays down the bank. In essence, the lender serves two roles: that of the interim lender for up to 90% of the deal (short term) and that of the 1st REM/UCC lender on the conventional piece for ½ of the project (long term). Assurance that the takeout of 6BCC’s 40% portion will definitely happen is important to the lender for this type of transaction to make sense. So what are some critical keys?
One of the secrets of a positive experience when participating in a SBA 504 transaction is to consider your relationship with 6 Bridges Capital Corporation as a partnership. It is much more than just a participation agreement in that 6BCC will and should take the lead on making sure the borrower is in compliance with all SBA requirements. Tune in and know what 6 Bridges Capital Corporation (essentially SBA) will expect to protect the integrity of the SBA 504 loan (and your first lien position).
6 Bridges Capital Corporation is experienced in this area because SBA has delegated the responsibility of collecting on defaulted loans to us. This is where the partnership between the 6BCC and the 1st REM/UCC lender can really come into play if handled with care and given the correct amount of importance by BOTH parties.