S FEATURED ASSOCIATE MEMBER BIG SKY FINANCE BY BRANDON BERGER BIG SKY FINANCE SBA 504 in 2024! This has a nice ring to it. At Big Sky Finance, we believe there are great opportunities to make 2024 the year of the 504 for our small business borrowers. 2023 was a tumultuous year for interest rates and commercial real estate financing in general. The SBA 504 Loan program is a financing tool we want every lender to know about, one that provides benefits to small businesses, commercial lenders and the Montana communities we live in. WHO WE ARE First off, let us share a little about who Big Sky Finance is and what our role is with the SBA 504 Loan program. Big Sky Finance is a Certified Development Company (CDC) authorized by the SBA to provide SBA 504 loans across the state of Montana. The SBA requires all 504 loans to be administered by a Certified Development Company. We are a local, Montana-based company headquartered in Billings. 2024 marks our 20th year providing 504 loans to Montana small businesses, working together with our lending partners across the state. We have a talented team with years of experience in commercial and SBA lending, committed to the growth and success of the Montana economy in which we all live! WHAT CAN THE SBA 504 LOAN BE USED FOR, AND HOW IS IT STRUCTURED? The SBA 504 Loan program is for owner-occupied, fixed asset financing: acquisition of land with new construction, purchase of an existing building, purchase with renovations, equipment purchases or refinance of existing commercial debt. Big Sky Finance partners with the borrower’s commercial lender, with the typical financing structure as follows: bank financing 50% of total project costs in a 1st lien position, SBA 504 loan through Big Sky Finance financing 40% of the total project costs in a 2nd lien position and the borrower coming in with as little as 10%. This structure may change under certain circumstances, with borrower’s equity increasing to 15% or 20% if financing a new business, special purpose property or combination of both. The SBA 504 Loan program is not only for new project financing. Debt refinance is another tool available with the SBA 504 loan program. Options include the straight refinance of existing eligible debt, or debt refinance with expansion for those looking to expand their current operation. With SBA rates below market, now may be the time for lenders to review their portfolios for opportunities to refinance existing, eligible debt. RATES Let’s talk about rates. The interest rates on SBA 504 loans are fixed for the term of the loan. The effective rates on SBA 504 loans are based on the 10-year Treasury yield for 20- and 25-year notes and the 5-year yield for 10year notes. Due to the fact SBA effective rates are based on these longer-term yields, SBA 504 loan rates have historically remained lower than most commercial loan rates; this was very evident in 2023, particularly as the Fed raised short-term rates. Locking in a fixed rate for up to 40% of a borrower’s long-term financing provides the certainty of a constant repayment stream through the life of the loan. SBA offers loan terms of 10, 20 or 25 years. Equipment-only notes typically utilize the 10-year note, while any of the three terms can be used for real estate. 12 Community Banker
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