Does the SBA 504 Work for Your Project?
As a business owner, the SBA 504 Loan Program is the perfect tool for achieving your long-term, real estate and/or equipment financing needs. Let the experts at Big Sky EDC partner with you and your lender to help your business grow. Utilizing the SBA 504 Loan Program, your business will retain cash for operations while locking in long-term, fixed rate financing!
Big Sky Economic Development Corporation is a statewide certified development company licensed by the SBA to administer the SBA 504 Loan Program in Montana. The SBA 504 is a direct SBA lending program designed to provide long-term, below-market, fixed asset financing to small, for-profit businesses. The maximum SBA loan portion is $5 million for eligible small businesses and goes to $5.5 million for eligible manufacturers. The SBA loan program represents permanent financing and is an economic development program utilizing job creation.
- Purchase land and improvements (operating company must occupy 80% of new buildings and 51% of existing buildings.)
- Construction of new facilities, or modernizing, renovating, or converting existing facilities.
- Refinancing of existing debt in some circumstances.
- Machinery and equipment with a minimum useful life of 10 years.
- Soft costs including but not limited to, title searches, appraisals, environment reports, architect fees, interim loan interest, certain bank fees, furniture and fixtures
- Working capital
Small Business Defined As
Tangible Net worth of not more than $15 million and 2-Year average Net Income after taxes less than $5 million.
Economic Development Requirements
- Job creation or retention (one job per every $65,000 borrowed from SBA 504), OR
- Public policy or community development goals met (various options available).
- Manufacturing firm (one job per every $100,000 borrowed from SBA 504)
Rates and Terms
- SBA rate fixed for the term of the loan (20-year rate is tied to the 10-year Treasury bond rate).
- The private lender sets their own rates and fees (commercially reasonable).
- Loan terms are 10 or 20 years (Real Estate: 10 or 20 year note, Equipment only: 10 year note).
Fees and Payments
- All SBA 504 loan fees are added to the loan amount and amortized over the loan term. One time processing fee of approx. 2.15% of SBA’s portions, loan closing fees of approx. $2500
- On-going service fee included in the effective full-term rate.
- Prepayment penalty for 1st half of term of SBA note—declining prepayment scale.
Example Of Financing On A Typical $1 Million Project
Total Project Cost:
|Acquisition of Land & Building||$800,000|
|Soft costs (appraisal, architect, engineering, closing costs)||$20,000|
|Entity||Loan Amount||% of Project||Security|
|CDC/SBA 504 Loan||$400,000||40%||2nd Lien|
|Borrower down payment*||$100,000||10%*|
* Start-up OR Special Purpose Building (i.e. car wash, hotel) requires 15% equity. Start-up AND Special Purpose Building requires 20% equity. Borrower down payment can be in the form of: cash, land equity, seller carry-back note (term must match SBA term and be subordinated to SBA if secured by project RE), or any combination thereof.
Typical Deal Structure For An Existing Business Would Be:
- 10% Owner Equity
- 50% Lender Financing (senior position on collateral)
- 40% SBA Financing (junior position on collateral)
Additional equity of 5% or 10% may be required—new business or special property.
SBA 504 Borrower ChecklistItems needed for application.
- Business financial statements for the last 3 years, along with A/R and A/P aging reports
- Business tax returns for the last 3 years
- Business debt schedule
- Two years projected income statement with assumptions broken down by month for 1st year
- Interim financial statements within last 60 days
- Affiliated business – 2 years financials and current financial statements (if applicable)
Legal Entity Documents (as applicable)
- Sole Proprietorship – Assumed Business Name filing
- Corporation – articles of Incorporation & corporate By-Laws
- LLC – Articles of Organization & Operating agreemento Partnership – Partnership agreement
- Franchise agreement (if applicable)
Personal Information (for each 20% owner)
- Personal tax returns for last 3 years
- Personal Financial Statements (SBA Form 413)
- Personal History Statements (SBA Form 912)
- Copy of driver’s licenses
Real Estate Information
- Real Estate Purchase agreement or Settlement Statement
- Construction cost budget and / or equipment bids
- Existing Environmental studies
** All financial statements must be signed and dated by the applicants – please sign front page of all financials (tax returns, interim statements, personal financials, etc.)
Red Oxx Manufacturing, Billings
Simms Fishing Products, Bozeman
Kevin Gustainis, President
Montana Peterbilt, Billings
Laura Johnson, Owner
The Firehouse Gym, Big Timber
Jeff Johnson, Owner
The Firehouse Gym, Big Timber