Small Business Financing
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Schuylkill Economic Development Corporation (SEDCO) will be pleased to assist you in an application for a United States Small Business Administration (SBA) 504 Loan.
What is the SBA 504 Loan Program?
The 504 Loan Program is a fixed asset financing program for expanding businesses. It is the first federal financing tool to recognize the importance of small businesses in the job creation process through their physical plant expansion. The “504” is the Economic Development Program of the U.S. Small Business Administration.
Who Qualifies for an SBA 504 Loan?
A business must have less than 500 employees. Its net worth must not exceed $6 million and its average net income after taxes for the preceding 2 years must not exceed $2 million. The business must be a for-profit corporation, partnership or proprietorship with a “sound business” purpose.
What Types of Projects are Eligible for SBA 504 Financing?
The proceeds from an SBA 504 loan may be used only for fixed asset financing: plant acquisition, construction, renovation, or expansion, including the acquisition of the land. Proceeds may also be used for land and site improvements (e.g. grading, streets, parking lots, utilities, or landscaping); the acquisition and installation of machinery and equipment; and the interest on interim financing. Additionally, project costs may include professional fees directly attributable and essential to the project (e.g. surveying, engineering, architectural or legal).
The minimum total project cost is $200,000.
How is a Loan Package Structured?
For an existing company, a maximum of 40% of the project cost can be obtained through SBA 504 or $1,000,000, whichever is less. In special cases the maximum can be up to $1,300,000. SBA 504 will fund 35% of a start-up company’s eligible project cost or special use facility. Projects involving the purchases of an existing company by new management are considered a start-up operation by the SBA.
The loan carries a fixed rate of interest, with a term of 20 years for real estate and 10 years for equipment. It is typically secured by a second lien.
Typically, 50% of the project costs come from private financial institutions. This is a conventional bank loan secured by a first lien on the assets. The bank provides interim financing to the applicant from the date of settlement until the SBA 504 debenture is sold.
A minimum of 10% comes from equity. In the case of a start-up company or a special use building, a minimum equity contribution of 15% is required.
The SBA 504 interest rate is fixed at the time of the debenture sale for a term of either 10 or 20 years, depending upon the use of the proceeds.
Job Creation Criteria
For every $35,000 of SBA 504 funds, 1 full-time permanent job must be created or retained within 2 years.
All loans must be secured to ensure repayment. Personal guarantees from individuals with 20% or more ownership in the company is required. Other collateral generally includes: a mortgage on the land and the building being financed; liens on machinery, equipment and fixtures; and lease assignments.
Interim financing will be needed for all projects. Normally the first mortgage lender provides the needed capital at project start and is repaid from the SBA debenture proceeds.
Loan review and approval approximately 30-40 days after a complete application is submitted to CCDC.
Applicants will be accepted on or before the 1st and the 15th of each month for processing and Loan Committee review. If the 1 st or the 15 th occurs on a Saturday or Sunday, the applications will be due the preceding Friday. Incomplete applications at the time of deadline will be deferred to the next deadline and processed at that time.
Applicant’s SBA 504 Loan Fees
1. Processing Fee Deposit: $1,500 Due at the time of application. Fully refundable upon sale of debenture.
2. Processing Fee: 1.5% of SBA loan amount Included in debenture funding.
3. Fiscal Agent Reserve Account: 1/2% (0.005) of SBA Loan Included in debenture funding.
4. Funding & Underwriter’s Fees: Approximately 1/2% (0.005) x the loan amount. Included in debenture funding.
Note: These fees are one time fees and approximate 2.75% of the SBA 504 Loan which is 100% funded as part of the debenture.
Bank’s SBA 504 Loan Fee
SBA assesses a fee of one-half (1/2) of one (1) percent of the first mortgage amount which is to be paid by the bank. This fee is due at the SBA 504 closing.
Legal fees are based on actual time required but usually range from $3,000 – $4,000. This fee is due at closing.
SUBSTANTIAL PENALTIES WILL RESULT IF LOAN IS PRE-PAID PRIOR TO MATURITY.
ADDITIONAL EQUITY PARTICIPATION WILL BE REQUIRED FOR PRINCIPALS WITH SIGNIFICANT LIQUID (NON-RETIREMENT) ASSETS.
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Loan applications and forms available for download:
The SBA 7A Loan Program includes financial help for businesses with special requirements.
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Benefits agricultural enterprises, industrial, manufacturing, export service enterprises, mining enterprises, advanced technology and the hospitality industry.
Small Business First (SBF) provides financing to small businesses that requires creative financial assistance. These funds are available to companies with fewer than 100 full-time employees. SBF loans may be used for land and building acquisition, building construction and renovation, machinery and equipment acquisition and installation, and may be used for working capital. Loans for up to $200,000 or 50% of eligible project costs are available. Loan terms vary depending upon the use of the funds: land & buildings, 10 years; machinery & equipment, 7 years; working capital, 3 years at 5% fixed. One job must be created or retained for each $25,000 loaned through SBF.
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MetroAction is a non-profit community development organization dedicated to providing small business loans and business development assistance throughout northeastern Pennsylvania (NEPA).
MetroAction’s lending, training and recognition programs are helping small businesses in northeastern Pennsylvania build the strength and independence that they need to be successful. Their programs and resources help create jobs, increase the availability of quality child care and foster the entrepreneurial spirit that our region is known for.
Many of the entrepreneurs using our programs lack start-up capital and cannot save money fast enough to acquire the funding they need to finance their small business. MetroAction is an alternative, yet successful and comprehensive, resource for small business financing, small business assistance and business training. Through our many programs, we are matching businesses with appropriate lending resources, providing hundreds of hours of business training and counseling while honoring small business success in our communities.
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