FAQs

SBA 504 Loan

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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

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 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 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 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).

What amount of equity is required from the borrower for the CTCIC 504 Loan Program?

The minimum equity injection is at least 10% of the total project cost. In addition, if the project involves the purchase or construction of a single-purpose facility, the required equity injection increases by 5%. If the business is new (less than two years old or any ownership change), the required equity injection also increases by an additional 5%. Start-up businesses need to be sufficiently capitalized.

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.

Will I need to personally guarantee the CTCIC 504 loan?

SBA requires guarantees from all individuals and legal entities that hold a 20% or more ownership interest in either the Project Property or the Operating Company.

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
  • Occupancy Requirements:
  • The Borrower must occupy 51% of an existing building purchase
  • The Borrower must occupy 60% of a newly constructed facility, and 80% within 3 years
  • The Borrower is required to meet job creation and/or job retention goals or an economic development objective, as determined by the CTCIC Loan amount

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

How do I know what I paid in interest and fees for last year?

Your amortization schedule will provide accurate information regarding interest and fees as long as payments are paid in a timely manner. Also, notices are sent to Borrowers by January 31 itemizing interest and fees paid for the prior year. If you do not receive yours by the third week of February, contact us.

How can I pre-pay my CTCIC 504 Loan?

Unlike standard bank loans, SBA-funded loans must follow strict guidelines. For specific information, visit our Current Borrowers area of the website and review Pre-Payment Information.

Is my CTCIC 504 Loan assumable?

If you are selling the building, a qualified buyer can assume your loan for a $1,000 assumption fee. The pre-payment penalty does not apply in this instance.

What is CTCIC’s Area of Operation?

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

How do I apply for the CTCIC 504 Loan?

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