Fountainhead 504
  • What Is an SBA 504 Loan?

    5,419 views 1 year ago
    So, what is an SBA 504 loan? I get this question a lot, as you can well imagine. It is a commercial loan product that is typically 90% loan-to-cost financing. OK, what I mean by 90% loan-to-cost financing is, we take the purchase price of the property, plus any soft cost, plus, if there’s gonna be any renovations. Whatever that is, put it together. We’ll finance 90% of it as opposed to what is more prevalent in the marketplace, which is ordinary conventional bank financing or credit union financing, which is typically going to be 75 to 80 percent loan-to-value and it’s usually the purchase price or the appraised value–whatever is less. So, in that situation, it’s one of our huge, big advantages of the financing we provide to business owners, which is the– Typically, the down payment is half, maybe even a third, of what the competition is offering. So, that makes a big impact for business owners, especially post great recession.

    I used to say this many, many years ago when everybody thought everything was great and it was always going to go up and everything is terrific. Nowadays, people understand it a little bit better that, “Hey, if you’ve got a lot of powder, it’s good to keep some of it dry.” Don’t liquidate all your savings accounts and all your retirement accounts to buy this commercial property if there’s another alternative. So, that’s a big piece of why SBA 504 Loans, I think, are much better products than ordinary conventional bank loans. Now, that’s on multipurpose properties. If it’s a special-purpose property, like a hotel or perhaps a daycare or a freestanding restaurant, the SBA requires an additional five percent down payment from the borrower, and if it’s a startup, that’s another five percent. So, worst case scenario with an SBA 504 Loan, you’d be looking at 80 percent loan-to-cost financing.

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