• 680+ FICO score for all primary business owners.
• 10% down payment if purchasing a business or commercial real estate
• Collateral: While collateral is not a requirement, the more collateral you can put up, the more likely it is you will get a loan
• Must have been in business for 2 years or more. It is possible for startups to get a CDC/504 Loan (as opposed to a 7(a) loan), however you will need all of the above plus be able to prove business management and industry experience.
• Your business must be profitable
• You may not have any delinquencies or defaults on record, including student loans
• If purchasing commercial real estate, your business must occupy at least 51% of the building.
• If building new commercial real estate, your business must occupy at least 80% of the building.

• As noted above, if using the loan to build or buy commercial real estate, your operation must occupy at least 51% of the building. You could purchase real estate where your operation occupies over half and rent out the rest but you could not buy a hotel or apartment building where the intent is to fully rent the property to tenants.An example SBA loan might be structured as follows: A 10% investment by the business owner, 50% from a conventional lender such as a bank, and 40% from a CDC (Certified Development Company – see below). In the event of a loan default the conventional lender is paid off first, reducing their risk. The important thing to note is that any amount below the maximum 90% not being funded by the CDC and a conventional lender must be covered by you as a down payment.

Certified Development Companies are non-profit lenders licensed by, but independent from the SBA. With approximately 230 CDC’s nationwide, their mission is to make it easier for small business owners to borrow funds by lowering the risk to traditional lenders.

CDCs have limits for interest rates, terms and fees that are set by the SBA. The loan must have a term of either 10 or 20 years with a fixed interest rate which is set by the US Treasury 5 and 10 year rates. In the case of a 10 year loan set by the 5 year rate, .38% will be added to the interest rate. In the case of a 20 year loan with a 10 year rate, .48% will be added. There are also other additional fees.

Traditional lenders such as banks, who will cover up to 50% of the loan, are not under the jurisdiction of the SBA, so their rates are not subject to SBA regulation. Rates and terms are negotiable but in general you can expect an interest rate on this portion of the loan between 4 and 8% and a term from 5 – 10 years with an amortization up to 25 years. Note that longer amortization schedules will result in lower monthly payments but a higher balloon payment at the end of the term.

Because the purpose of the SBA Loan Program is to stimulate the economy, partially by creating or securing jobs, your CDC/504 Loan must create or retain one job for every $65,000 borrowed, except for small manufacturers where the ratio is one job for every $100,000.

Benefits

• Set payments at regular intervals
• Can be used for a wide variety of purposes
• Relatively low interest rate
• Long repayment schedule

Drawbacks

• Lengthy application process
• May carry early payment penalty
• Variable interest rates may increase