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Questions & Answers
How are lending rates established?
The SBA 504 program rates are established by the sale of the Treasury Bills. At the time of sale, the interest of the T-Bill is established for a period of 30 days. That rate then becomes the basis for calculating the SBA 504 total rate.
How often are rates updated?
Please call for current updated rates.
How cute is the Preferred staff (see pictures)? Their dogs?
Very and more very!
If the borrower is leasing back their building, what documentation is needed?
If the Borrower is different from the Operating Company, e.g. (Eligible Passive Company), there must be a lease between the Borrower and the Operating Company for 100% of the project property. If there is a subtenant, the sublease must be between the Operating Company and the subtenant. Preferred will give the borrower templates to complete this step.
When does the borrower contribute our down payment?
The Borrowers contribution must be completed prior to closing. Proof of the contribution must be provided whether from business or personal resources or both.
What are the insurance requirements for this loan?
Hazard insurance on the Project Property must be obtained prior to closing and must be current. The amount should be full replacement cost and must obtain a mortgagee clause in favor of the SBA and the Preferred. The policy must provide for 10 days notice prior to cancellation.
Does the borrower need to submit new financials?
Prior to the closing, the Operating Company Financial Statements must be current to within 60 days. Once the loan is funded the Operating Company must provided update statements at the end of each fiscal year.
If the loan involves construction, are there any additional documents the borrower must provide?
In projects involving construction, the Borrower must provide a (1) Certificate of Occupancy or Final Inspection at approval, (2) a notice of completion of the work, and (3) proof of construction expenditures. Your Preferred loan officer will assist you with any questions or issues.
Why does the borrower need to have a standby agreement?
Some debt must be made subordinate to the SBA deed of trust. Frequently, this is debt of the Operating Company to a shareholder. A document entitled a Standby Agreement will subordinate the debt.
How much can be borrowed?
Preferred Lending Partners minimum is $150,000 and the maximum is $1.3 million.
What is the Turnaround Time for approval of the loan?
The borrower will be notified by Preferred whether their loan meets basic SBA 504 requirements within a few days of submission of the loan application and the associate package. Once this approval is received, the process for formal approval by the SBA begins. Once Preferred’s staff has received all the necessary items on the Application Checklist, a Loan Committee meeting is scheduled. If all is satisfactory, the Loan Committee recommends approval of the loan. When approved the application is forwarded to the SBA who will review it within 3 to 5 business days.
Is a business plan required?
Yes, every business should have a business plan. A business plan is required by any business lender. If the borrower needs assistance, Preferred will refer the borrower to individuals or community entities that can assist them in the creation of this documentation.
Is refinancing allowed?
No, unless the business is expanding its current facility which has a first mortgage on it, the first mortgage lender on a SBA 504 project may refinance the current mortgage and fund 50% of the new project's costs, which the 504 loan could subordinate its 40% participation.
Who qualifies for an SBA 504 loan?
A business must be for-profit and have less than 500 employees. Its net worth must not exceed $7 million and its average net income after taxes for the preceding 2 years must not exceed $2.5 million. Eligible businesses must be corporations, partnerships or proprietorships with a "sound business" purpose.
Does the borrower have to personally guarantee an SBA 504 loan?
Anyone who owns 20% or more of the operating small business or the real estate must personally guarantee the loan.
Can the borrower’s spouse or children own part of the real estate for tax purposes or estate planning?
Yes. Anyone can own the realty. The ownership of the property does not have to match the ownership of the operating company. Many small business owners (for liability, tax or estate planning purposes) choose to have the building owned by someone other than themselves or the operating company.
What kind of terms should the borrower expect from the first mortgage/first lien lender?
The interest rate and terms on the first mortgage/first lien are negotiated between the Bank and the Borrower.
Is there a requirement for a Phase I environmental audit?
Yes, Phase I environmental audits are usually required for each realty projects.
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