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Gulf Coast Business Finance
SBA 504 Loans
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  What constitutes a small business?
  How much can I borrow?
  What can I use this money for?
  What kinds of businesses can participate?
  What is the difference between the 504 program and conventional financing available from a bank?
  What are the rates?
  What's the catch?
  How is a loan structured?
  Can this program finance operating capital and debt consolidation?
  What are the disadvantages to the program?
  How can the SBA afford to charge lower interest rates?
  What are the most important factors in getting an approval on a SBA loan?
  Are there closing costs associated with the program?
  How is the interest rate determined?
  How long does it take to get an approval?
  If approved, what happens next?
  Is insurance required as collateral for an SBA loan?
  Can this SBA program finance the debt consolidation needs of my business?
  Where can I find out more about these programs?
 
  What constitutes a small business?
  To qualify for most programs, a business must have a net worth of less than $15.0-million or a net income of less than $5.0-million.
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  How much can I borrow?
  Depending on the program, you could borrow from SBA anywhere between $50,000 to $5.5-million on total projects amounting to $15-million or greater.
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  What can I use this money for?
  The programs provide long-term financing for equipment or real estate (land, building, new construction, rehabilitation), professional services such as legal fees, closing costs, appraisals, environmental investigations, architectural work as well as debt refinancing with a cash out option available for operating capital. 
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  What kinds of businesses can participate?
  Almost anyone can qualify, as long as they are legal residents. We do business with hoteliers, manufacturers, restauranteurs, defense contractors, medical facilities, convenience stores, and almost anything else.
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  What is the difference between the 504 program and conventional financing available from a bank?
  The 504 program provides better terms than conventional financing. A business only needs to inject 10% of its own capital into a 504 project, compared to 20-25% with a conventional lender. The SBA portion of the financing has a fixed interest rate for a 20-year term while conventional financing often has a variable interest rate and shorter terms. Also, the SBA does not typically require "additional collateral", whereas a conventional loan will often require a second mortgage on your home.
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  What are the rates?
  The rates are determined at closing, but they are lower than through conventional lending. Participating banks usually offer lower rates on their part of a project because they are assuming less risk.
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  What's the catch?
 
The program is designed to encourage economic development, especially in areas lagging behind. To qualify for the program, a business must meet certain guidelines, but these are not that restrictive. A borrowing business must either project that it will create jobs or just one of the following:
  • the business must be located in a business revitalization district;
  • the business must have or project at least 10 percent of its revenues from exports;
  • the business must be mostly owned by minorities, women or veterans;
  • the business must be located in a "rural" area;
  • the business must aim to increase its productivity and competitiveness through the use of technology, or
  • the business must be located in an area affected by federal budget reductions
  • The business must show at least a 10% energy savings 

The program also favors those projects that help improve the environment, safety or health of employees, or that assist a small business that provides environmental services.
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  How is a loan structured?
  The program involves a lender who will finance 50% of the eligible project costs, with the SBA funding a second mortgage of up to 40% of the project. The borrower is required to have 10% equity injection.
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  Can this program finance operating capital and debt consolidation?
  The program can only finance your fixed asset acquisitions, but because it doesn't require much cash from the borrower, more of the business's money is available for operations. We can, however, use other programs to consolidate existing debt.
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  What are the disadvantages to the program?
  The loan fees are usually a bit higher than conventional financing, but these fees are financed within the loan amount. There is a prepayment penalty if you elect to pay off the SBA loan within the first ten (10) years. Typically borrowers prepay the bank's first mortgage loan if they are able to make additional payments, so this isn't an issue. The prepayment penalty reduces by 10% every year and disappears after 10 years. The SBA loan is assumable, which negates the prepayment penalty if a qualified business assumes your SBA loan.
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  How can the SBA afford to charge lower interest rates?
  Each month the SBA pools the various 504 loans scheduled for funding into bonds and sells these federally insured bonds (debentures) to private investors. This allows your company to have “access to Wall Street”, a financing avenue traditionally reserved for the large companies.
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  What are the most important factors in getting an approval on a SBA loan?
  The key factors are management history, character, and the business's history of strong cash flows
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  Are there closing costs associated with the program?
  Yes, there is a legal closing fee, as well as other miscellaneous closing costs associated with the program in addition to the SBA loan origination fee, but you can finance these as part of the loan.
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  How is the interest rate determined?
  The interest rate is set at the time the debenture is sold to the private investors. The rate is typically priced in range with the 10-year Treasury bond. For current rate information, feel free to contact our office.
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  How long does it take to get an approval?
  We can usually provide a SBA approval within 10-15 working days from the time that you have submitted a complete loan application.
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  If approved, what happens next?
  Upon approval by the SBA, you will be issued an authorization outlining SBA's terms and conditions of the loan. The participating lender will then fund your project on an interim basis until the SBA funds are generated through the sale of the debentures. Generally, the timing is 5-6 weeks after closing.
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  Is insurance required as collateral for an SBA loan?
  Basic insurance coverage, such as property and hazard insurance, is required. Workers compensation coverage is also required (if applicable per state guidelines), as well as insurance on the life(s) of the principal(s) of the business, if there is not a depth of management present and/or there is not an abundance of collateral within the project.
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  Can this SBA program finance the debt consolidation needs of my business?
  Yes. The SBA 504 Program can finance your fixed asset acquisition costs (real estate acquisition and improvements, equipment, and the soft costs) as well as provide debt consolidation funding, if the funding results in savings to the borrower as a result of better interest rates and terms and provided the collateral value is sufficient.
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  Where can I find out more about these programs?
  Call us with your questions. 727-895-2504/800-850-2504
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