504 FAQs

Frequently Asked Questions

Borrower (11)

How long will it take for my loan to be approved?

With complete information and documentation received from the borrower, NGCDC, Inc. can complete a loan package relatively quickly. Other timing factors including an appraisal and environmental reports can also affect the timing. NGCDC, Inc. cares about your business and will work together with the lender and the borrower to complete all expectations as quickly as possible.

What is the minimum required down payment?

A minimum down payment of 10% is required for most 504 projects. A 15% down payment is necessary if the business is a new, start-up business (less than two years old) or when the project property is considered a special-purpose structure. A 20% down payment is required if both situations apply.

How much does a 504 loan cost?

When your SBA loan is funded, origination fees totaling approximately 2.65% of your net debenture amount plus an attorney closing fee of approximately $2,500 will be incurred. These fees are included in the principal amount and are financed over the term of the loan (not out-of-pocket expenses).

SBA 504 loan fees are determined by SBA regulation and are needed to cover the cost of administering the program.

What will my interest rate be?

SBA 504 loan interest rates are determined at the time the 504 debenture pool is sold to the private market. The interest rates are tied to the 5 or 10-year U.S. Treasury rate in effect on the date of funding and are fixed for the term of the loan. SBA 504 interest rates cannot be locked in prior to funding.

Can I pay off my SBA 504 loan early?

Yes. The loan can be prepaid early in its entirety (see prepayment penalty description below). No advance payments or partial payoffs are permitted. SBA is not a conventional bank, therefore special procedures and deadlines exist for prepaying your 504 loan early. NGCDC, Inc. can give you a complete explanation of these procedures.

Is there a prepayment penalty on a SBA 504 loan?

Yes, for the first half of the life of the loan. This SBA requirement exists to keep the market of investors who provide funds for the 504 loans whole. The amount of the prepayment fee decreases each year and goes away after 5 years on 10-year loans and after 10 years on 20-year loans.

Can I rent out part of my building after the SBA loan is funded?

If the project involves an Existing Building purchase, the occupancy requirement of the borrower’s business is 50%. For a New Construction project, the initial occupancy requirement is 60% and after 10 years the requirement is 80%, therefore, the allowable Permanent Lease space is 20%. Subleases are required for each third party-tenant.

Can a building be owned by an entity other than the Operating Company?

Yes, a real estate holding company can own the building as long as it is 100% leased to the small business (operating company).

Will I be required to personally guarantee the SBA 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 the collateral requirements?

Generally, the project property being financed will be the sole collateral securing the loan. Additional collateral may be required if there is a deficiency in the appraised value of the project property or to mitigate a credit risk.

Can I get a second SBA 504 loan?

Yes, or even more than 2. The amount of your total SBA indebtedness is the limiting factor, not the number of SBA loans.