T SBA 504 Project Example SBA 504 FINANCING STRUCTURE % $ Bank’s Conventional Loan 50% $1,250,000 Net SBA 504 Loan Proceeds 40% $1,000,000 Borrower’s Equity 10% $250,000 Total Project Costs 100% $2,500,000 DEBT SERVICE: BANK LOAN Bank’s Conventional Loan $1,250,000 Amortization (in months — estimated) 300 Interest Rate (estimated) 7.300% Monthly Payment (estimated) $9,075.39 DEBT SERVICE: SBA 504 LOAN SBA 504 Gross Debenture Amount $1,027,000 Term/Amortization (in months) 300 Effective Interest Rate (July 2024) 6.206% Monthly Payment (estimated) $6,746.90 TOTAL DEBT SERVICE: BANK + SBA LOAN Bank’s Conventional Loan $9,075.39 SBA 504 Loan (2nd Deed of Trust) $6,746.90 Combined Monthly Payment $15,822.29 Combined Interest Rate (estimated) 6.807% How the SBA 504 Loan Can Help Your Bank Compete on Interest Rates By Jessica Stutz, Lending Director, B:Side Capital There are many advantages to the SBA 504 loan program that can provide you with a competitive advantage and provide the best financing for your small business client. The SBA 504 loan program combines financing from a bank or other financial institution with financing from the SBA to allow for up to 90% financing on commercial real estate. The real estate must be 51% or more occupied by a small business operating company that is the borrower or guarantor on the loan. Key benefits include lower effective interest rates, long-term financing and fully fixed interest rates, with July 2024 rates as low as 6.206%. This program can help offer small business clients a lower effective interest rate compared to conventional or SBA 7(a) rates, particularly useful in a competitive financing environment. Lower Effective Interest Rates • Many borrowers are rate sensitive as rates have increased from 2020 and 2021 levels. • In addition, for many owner-occupied commercial real estate financing requests, there can be several financial institutions competing for the same deal. • Using the 504 loan program may help you offer the small business client a lower effective interest rate than your institution’s conventional or SBA 7(a) rates would allow for. For example, let’s say your institution can offer an interest rate of 7.30% for owner occupied commercial real estate. Considering a property purchase price of $2,500,000, your loan to the borrower would be $1,250,000 at 7.30%. The SBA 504 loan would be $1,000,000, assuming 10% equity of $250,000. After SBA fees, the gross SBA 504 loan will be $1,027,000. If you use the SBA 504 loan program, you can offer the client an overall effective interest rate of 6.807%. Colorado Banker 8
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