NGCDC, INC. AND THE SBA 504 LOAN

NGCDC, Inc. packages, closes, and services the 504 loan.  The 504 loan provides longer term, fixed and reduced rate financing for eligible projects.

A borrower must contribute at least 10% of the project cost; a private lender provides a separate loan for up to 50% of the project cost on a first lien basis; and NGCDC, Inc. can provide a 504 loan for up to the lesser of 40% of the project cost or $1.5 million on a second lien basis.  The NGCDC, Inc. 504 loan funds are obtained through the sale of SBA guaranteed debentures on the private capital market.

More detailed information is described below or click on specific interests: Use of Proceeds; Terms, Interest Rates, and Fees; Collateral; Eligibility; Job Creation/Other Goals; Information Needed for the 504 Loan; 504 Loan Application Procedure; Loan Servicing; or Contact for a Loan Application Package.

Use of Proceeds*

Proceeds from 504 loans must be used for fixed-asset projects such as:

• purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping;
• construction of new facilities, or modernizing, renovating or converting existing facilities; and
• purchasing machinery and equipment.

The 504 loan cannot be used for working capital or inventory, consolidating or repaying debt, most refinancing, speculation, or investment.

Terms, Interest Rates and Fees*

Interest rates on 504 loans are fixed for the maturity and are based on the current market rate for five-year and 10-year U.S. Treasury issues plus an increment above the Treasury rate, based on market conditions.  Only maturities of 10 and 20 years are available.

Fees total approximately 3% of the debenture and may be financed with the loan.  Other fees are payable by the borrower (ie. legal and filing fees) and the lender (0.5% due to SBA) at the 504 loan closing.  Monthly servicing fees and a guarantee fee are also paid by the borrower (based on the principal balance each five years).  Servicing fees include the NGCDC, Inc. (0.5%) and the SBA and central servicing agent (0.225%).  The SBA guarantee fee is set at loan authorization and may be up to 0.875%.

Private lenders charge market rate (fixed or variable) for their loan.  Maturities are tied to the 504 loan and must be at least seven years.

Collateral

Generally the project assets being financed are used as collateral.  Personal guarantees of the principal owners are also required.

Eligibility

To be eligible, the business generally must be operated for profit and fall within the size standards set by the SBA.  Under the 504 Program, a business qualifies as small if it does not have tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years.  The business may be existing or start up (less than two years old) and may be in the trade, service, transportation, or manufacturing industries.

The loan project location may be in any county within the State of Georgia.  NGCDC, Inc.'s target service area includes Bartow, Catoosa, Chattooga, Cherokee, Dade, Fannin, Floyd, Gilmer, Gordon, Haralson, Murray, Paulding, Pickens, Polk, Walker, and Whitfield.

Passive investment companies, non-profits, lending institutions, real estate development companies, and some other enterprises are not eligible for 504 loans.

Job Creation/Other Goals

The 504 loan generally requires that one new job be created/retained for every $50,000 provided by NGCDC, Inc.  The NGCDC, Inc. may, however, vary this standard on a project by project basis.

The project would preferably also fulfill other economic development goals including leveraging private investment in distressed areas, areas engaged in a revitalization program, minority enterprise development, rural development, export expansion, and other federal public policy goals.

Information Needed for the 504 Loan

NGCDC, Inc. needs the same information as a lending institution:  loan amount needed, use of proceeds, and ability to repay the loan.  The following list details the items needed to evaluate and package the 504 loan project:

    • History of the business and description of the  project
    • Use of the loan proceeds
    • Personal history form on all principals
    • History financial statements
    • Projected financial statements
    • Monthly cash flow statements
    • Names and financial statements of affiliates
    • Resumes of principals and managers
    • Schedule of debt financing for next year
    • Copy of franchise agreement
    • Current personal financial statement for each  principal
    • Schedule of previous government financing
    • Resolution from the business' Board of Directors to borrow
    • Privacy Act Notice
    • Copy of existing or proposed lease or purchase agreement
    • Number of jobs created or retained or other  objectives
    • Appraisal on an as-completed basis
    • Plans and specifications on construction, cost  quotes on construction and equipment
    • Collateral offered

504 Loan Application Procedure

The following generally describes the major steps in the 504 loan proposal and application process from initiation to closing:
 

• Small business principal contacts NGCDC, Inc. to determine project and business eligibility.
• Small business principal provides the information required for evaluation to  both the NGCDC, Inc. loan officer and the private lender loan officer.
• Loan proposal is presented to both the NGCDC, Inc. Board of Directors and the private lender Board of Directors for approval.
• Package is completed and sent to SBA for  approval.
• SBA sends a loan authorization which outlines the loan terms and conditions as well as documents needed for closing.
• Private lender provides the construction or interim financing.
• Project completed and loans closed.

Loan Servicing

The borrower makes payments to the private lender on the lender's loan, and the private lender services its loan.  The SBA 504 loan payment is debited from the designated borrower bank account by automatic draft from NGCDC's Inc.'s servicing agent, Colson Services.  NGCDC, Inc. otherwise services the SBA 504 loan.

Contact

For Loan Application Assistance:   Loan Program Coordinator, at ngcdc@ngcdc.org, or call (706) 226-1110 or (706) 272-2300.

*Uses, Loan Limits, Terms, Interest Rate, and Fees should be verified at time of application inquiry.