Check Out A 504 / CDC Loan

Buying A Building?

Confused about 504/CDC loans?

Confused about 504/CDC loans?I contacted the leading industry association for these loan providers, NADCO to learn more. This led to an interview with Beth Solomon, President and CEO of NADCO, and Hector DaCosta, Senior Loan Officer for New Jersey Business Finance Corp.

What is a Real 504/CDC loan?

What is a Real 504/CDC loan?Real 504/CDC are loans that enable small business owners to buy real-estate, such as office buildings, manufacturing plants, or land for the use of their business.

New Jobs. of these loans is to encourage job creation and economic development. As part of the loan process, you will need to explain how the purchase of the real estate will lead to

The Purpose

The real estate being purchased by these loans must be at least

by the business taking out the loan.51% occupied

For example, a retail store could buy a two-story building in which they used the main floor and basement, while renting out the top floor.

What are the benefits of a Real/504 loan?

Low down payment of 10%for an existing business buying real-estate that could be used by multiple types of companies. This compares to banks typically requiring a 25% down payment.

The CDC portion of the loan is a true 10 or 20 year loan with a very low interest rate. The loan can include equipment to outfit the space, building repairs and improvements, and the fees for the loan.

How does a Real 504/CDC loan work?

A Real 504/CDC loan is, in fact, two loans.

One loan is being made by a CDC(community development corporation) which is guaranteed by the SBA.

And another loan is made by a banking institution.

The CDC LoanThis is a 10 or 20-year, fully amortizing, fixed-rate loan; meaning it works the same way as a traditional mortgage loan works. The borrower pays equal monthly payments for the life of the loan, at which point, the loan is completely paid off.

The CDC Loan (Interest Rates)The interest of the loan is very low. For a 10-year loan, it’s a 5-year treasury rate plus 0.38%. For the 20-year loan, it’s a 10-year treasury rate plus 0.48%. However, there are ongoing fees on top of the interest payments that need to paid; the fees total around around 1.7%.

The Bank LoanThe interest rate offered on this loan is determined by the bank making the loan. The loan is generally 5 or 10 years long. In the case of loans that are 10 years in length, the interest rates generally reset after 5 years.

The Bank LoanThese loans don’t operate like your traditional fixed-rate mortgage. At the end of the 5 or 10 years, the original amount borrowed (the principal) will not be paid off in full.

How to get a Real 504/CDC Loan

Finding A BankWhen making a real-estate loan, banks focus on the LTV ratio. LTV stands for loan (amount of the loan) to value (value of the real estate). Banks generally would like the LTV ratio to be 75% or less.

Finding A BankWhen starting a search for lenders, it’s a good idea to find out from your local CDC which banks are most active in making these types of loans.

Finding and Getting Approved by a CDCThere are a limited number of CDCs in any particular state that make Real 504/CDC loans. For example, in New Jersey there are three active CDC lenders. Nationwide, there are around 270 of these organizations.

to make you a loan, a CDC cannot go to the SBA to get a loan guaranteed. However, you can contact a CDC before you approach a bank. This can be helpful, since the CDC is a non-profit and can provide advice about what questions to ask a bank.

Without a banking institution

job creation.The goal of the CDC is

This is the main reason why a bank might approve a loan and a CDC might not.

The CDC must expect that one manufacturing job is created for every $100,000 it lends or one new non-manufacturing position for every $65,000 it lends. (Keep in mind, this is not the total amount lent, just the CDC portion).

The purpose of the 504 / CDC loan is to provide financing for projects with community economic benefits, which banks would consider too risky to fund without the CDC participating.

Why a bank might approve you for a loan and CDC might not? And The Reverse.

If a company can get a loan to buy the real estate without the involvement of the CDC,

then the company would not qualify for the CDC loan.

a loan that a CDC might be willing to submit to the SBA for approval (for the loan to be submitted, there needs to be bank a willing to lend) might still be considered too risky by bank underwriters.

On the other hand,

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