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What is the SBA 504 Loan Program?

The SBA 504 Loan Program promotes local economic development by providing long-term fixed-asset financing to expanding small businesses. More specifically, the CTCIC 504 Loan is designed to assist small businesses that will be financing the acquisition of owner-occupied facilities and that will create or retain valuable jobs within the community.

The SBA 504 Loan Program has the lowest default and loss rate of any of SBA’s financing programs.

What are the main advantages of a CTCIC 504 Loan?

• Low down-payment requirements
• Long repayment terms (20 years)
• Projected income is considered, not just historical cash flows
• Collateral may be less critical in loan qualification decisions

Are only Banks allowed to participate in a CTCIC 504 Project?

No. Savings and loan associations, credit unions, pension funds, insurance companies, commercial lending companies, taxable industrial revenue bonds and individuals may participate as a lender.

How long is the CTCIC 504 Loan process?

A lot depends on the borrower. With complete information and documents, we can pull together the loan package quickly. The timing often depends on obtaining the appraisal and environmental reports as early as possible. All things being equal, CTCIC routinely meets the demands of a 45-day escrow. It is always good advice to bring us into the process early in order to discuss the project timing. In any event, SBA 504 Loans do not take longer to approve than conventional loans.

What are the terms of the CTCIC 504 Loan?

CTCIC 504 Loans used for the acquisition of real estate typically have a term of 20 years, while machinery and equipment loans typically have a term of 10 years. The CTCIC 504 Loan has a low interest rate, which is fixed for the entire term of the Loan. The interest rate is based on a spread over the current market rate for 10-year U.S. Treasury issues and is determined when the Loan funds.

What are the SBA’s requirements regarding the Loan terms from the Third Party Lender (TPL)?

Third Party Lender (TPL) permanent first position loan terms and rates (including points and fees as applicable) are set by the TPL with a few simple limitations:

• The minimum term of the permanent loan is 10 years when the CTCIC 504 Loan is 20 years (typically real estate projects) and 7 years when the CTCIC 504 Loan is 10 years (typically machinery and equipment projects);
• Interest rates must be legal and reasonable;
• TPL Loan must not have any early call feature or contain any demand provisions unless the loan is in default;
• TPL Loan must not be open-ended

For more information, visit our Partners’ Resources.

What loan amounts are available with the SBA 504 Loan Program?

Visit our Partners’ Resources for information on Structure, Eligibility & Program Parameters.

What type of equipment can be financed with a CTCIC 504 Loan?

Long-term machinery and equipment with a useful life greater than 10 years (for example: a printing press).

Can soft costs be included in a CTCIC 504 loan?

Yes, “soft costs” (i.e. appraisals, environmental, construction interest, closing costs) can be financed in the 504 loan, allowing the small business to preserve working capital. If you’re not sure whether a cost will be eligible, contact our Loan Officers today.

What are some basic eligibility requirements of the CTCIC 504 Loan?*

• The Third Party Lender financing must be equal to or greater than the CTCIC 504 Loan
• The CTCIC 504 Loan may not exceed 40% of the total cost of the project
• The Borrower’s injection must be at least 10% of the total project cost, and may be more, as required by statute or for credit reasons
• No more than 50% of the project costs can come either directly or indirectly from Federal sources

*This is not an exhaustive list. Speak with our Loan Officers for more information.

What are the insurance requirements for the CTCIC 504 Loan?

Visit our Partners’ Resources for information on Paving the Way to Funding.

How much space does the business have to occupy?

Visit our Partners’ Resources for information on Structure, Eligibility & Program Parameters.

How is a CTCIC 504 Loan deal structured?

Visit our Partners’ Resources for information on Structure, Eligibility & Program Parameters.

What are SBA’s requirements for appraisals?

Visit our Partners’ Resources and review the information about Appraisals, Environmentals & Construction.

Is an environmental report required when the purchase of real property is being financed with a CTCIC 504 loan?

Visit our Partners’ Resources and review the information about Appraisals, Environmentals & Construction.

Is the CTCIC 504 Loan assumable?

If the Borrower is selling the building, a qualified buyer can assume the CTCIC 504 Loan for a $1,000 assumption fee. The pre-payment penalty does not apply in this instance.

What fees are associated with the CTCIC 504 Loan?

There are fees associated with the CTCIC 504 Loan that are required by SBA for every 504 loan that is funded; these fees are approximately three percent of the CTCIC 504 Loan and are financed as a part of the Loan. In addition, there are servicing fees associated with the CTCIC 504 Loan that are reflected in the effective interest rate. Finally, there are out-of-pocket expenses related to the CTCIC 504 Loan closing, which is autonomous from the bank closing, including but not limited to recording costs, filing fees, title insurance premiums, hazard insurance premiums, and flood insurance premiums (if applicable).

What collateral is taken to secure the CTCIC 504 Loan?

Collateral taken to secure the CTCIC 504 Loan typically includes: a second mortgage on the land and building being financed, a second lien on any machinery, equipment and/or fixtures that are financed, unsecured personal guaranties from any principal with greater than 20% ownership, and lease assignments.

An owner’s personal home is not usually required as collateral. In the majority of projects, the Project Property will be the sole collateral securing a CTCIC 504 Loan. Additional collateral is only required when there is a deficiency in the appraised value of the Project Property or when other serious credit issues are apparent.

What is CTCIC’s Area of Operation?

CTCIC operates in the entire state of Connecticut and certain counties in Rhode Island.

How do I refer a client to the SBA 504 Loan Program?

Have your client Contact CTCIC or their current financial institution and inquire about SBA 504 Financing.