SBA 504

SEED was certified in late 1982 by the U.S. Small Business Administration (SBA) to package loans under the SBA 504 Program. SEED packages 504 loans throughout Massachusetts, and most of Rhode Island.

SEED is an SBA Accredited Lender. This designation enables SEED to obtain final SBA approval on 504 loans in three to five business days. SEED is one of the top SBA 504 lenders in the region.

The SBA 504 Program provides long term, low fixed interest rates, 90 percent financing for small businesses undertaking real estate or machinery and equipment, projects ranging from $200,000 to $10 million plus. Most small businesses are eligible.

How It Works
The SBA 504 Program provides a maximum of 40 percent financing of an eligible project. A lending institution selected by the applicant finances 50 percent of the project and takes first position on the equity. The applicant provides the remaining ten percent. The lending institution's portion is financed at conventional rates and terms. See loan structure below:

Loan Amount
The minimum allowable amount on a 504 debenture is $50,000 (a total project of $125,000). The maximum is $4 million for manufacturing businesses and $2 million for all others. On projects smaller than $200,000, SEED evaluates the benefits to the client.

Eligible Businesses
For-profit corporations, partnerships or proprietorships; industrial, commercial or service businesses; tangible net worth not in excess of $7 million; less than $2.5 million average net profit after taxes during previous two years.

Eligible Projects
Acquisition of land and buildings; construction and/or renovation; leasehold improvements; equipment and furnishings; interim interest; and professional fees for appraisals, surveying, accounting, engineering and architectural services.

Geographic Coverage
SEED Corporation can package 504 loans
throughout Massachusetts and all of Rhode Island (except Washington County).

Job Requirement
SBA requires that the company being financed demonstrate that it will create one job for each $50,000 of SBA investment over a period of two years. In a project of $500,000 with an SBA share of $200,000, the company would have to create four new jobs over a period of two years. The job requirement may be waived, if other economic development goals are met.

Process
SEED’s Loan Review Committee meets every two weeks or as needed to approve loan applications. Generally it takes 30 days to obtain full approval including the letter of authorization from the U.S. Small Business Administration.

If the participating lending institution agrees, however, the client can proceed with the project as soon as SEED approves the application. This approval can take two to four weeks depending on when the client approaches SEED and if the client has the needed preliminary information:

• A signed Purchase & Sale Agreement, if applicable;
• Historical financial statements and IRS returns for 3 years;
• Interim financial statement no older than 120 days; and
• Personal financial statements and IRS returns for the last two years for principals with 20% or more ownership

Advantages
The 504 Program offers the following advantages:

• Financing for a fixed asset project with generally only 10% down;
• Long-term, fixed rate funds enhance cash flow for the business;
• Can include soft costs, equipment, and furniture and fixtures minimizing out of pocket expenses and preserving cash for the business; and
• Allows reliance on financial projections – for startups and businesses with inadequate historic cash flow.

Fees
One time packaging fees total 1.9% of the SBA 504 loan amount (not the total financing). These fees are rolled into the SBA 504 loan. In addition, there are servicing fees to SEED and SBA. These fees are included in the effective fixed rate quoted by SEED. SEED’s servicing fees are lower than other 504 lenders. Overall, SEED offers the most cost effective financing.

For more information, please contact SEED Corp.

SEED is an equal opportunity lender and business assistance provider.