Building South Carolina One Business At A Time

SBA 504 Debenture Program

Sample Project
ABC Enterprises has been leasing a 10,000 square-foot retail space for five years. A comparably-sized building on the same block has just gone on the market for $1,000,000. ABC’s owner, John Smith, wants to make an offer on the building, but he’s uncertain if he can put down the 25% ($250,000) down payment that would be required with conventional financing. Jane Williams, his long-time lender, has the solution: an SBA 504 loan! Here’s how it works: the bank will finance a $500,000 first mortgage for 50% of the cost, and Certified Development Corporation will finance a $400,000 second mortgage SBA 504 loan for 40% of the cost. Therefore, Mr. Smith’s down payment will only be $100,000, allowing him to conserve his working capital and expand the business.  Note that these percentages are subject to change.
Lender/Borrower	Project Costs	Percentage of Project Costs
First Mortgage	$500,000	50%
SBA Second Mortgage	$400,000	40%
Borrower Equity	$100,000	10%
Total Project	$1,000,000	100%

Equity Requirements | Use of Proceeds | Maturity | Interest Rates
Fees Relating to Debenture | Eligibility

Maximum debenture in most cases: $1,500,000

Up to $2,000,000 in cases that meet Federal Economic Development Objectives

Up to $4,000,000 to "Small Manufacturers"

Debenture maximum: 40% of project

(subject to the limitations above)

• Debenture secured by 2nd mortgage
• First mortgage lender amount unlimited
• Change in ownership transactions are eligible

Equity Requirements (top of page)

Business must provide 10% to 20% of project

• If business over 2 years old and general purpose real estate: 10%
• If business over 2 years old and special purpose real estate: 15%
• If business less than 2 years old and general purpose real estate: 15%
• If business less than 2 years old and special purpose real estate: 20%

Use of Proceeds (top of page)

• Purchase major fixed assets such as land, buildings, improvements, long term equipment, construction and renovation
• Soft costs such as architect and engineering fees, interim interest, environmental studies, equipment setup and delivery, and certain legal fees related to the loan
• NOT ELIGIBLE: General working capital, accounts receivable, inventory, debt refinancing, franchise fees and vehicles

Maturity (top of page)

• 10 years on equipment
• 20 years on real estate

Interest Rates (top of page)

• Generally slightly above long term Treasury Rate
• Based on current market at time of funding for 5 and 10 year Treasury Issues plus an increment above the Treasury Rate
  The debenture rate as of August 26, 2008 is 7.34%. 

Fees Relating to Debenture (top of page)

• Approximately 3% of the debenture amount and financed with the debenture
• Funded with debenture proceeds

Eligibility (top of page)

• For-profit business
• Tangible net worth not in excess of $6,000,000 and average after tax net profit cannot exceed $2,000,000 for the previous two years.
• Job creation or retention requirement: One full-time equivalent job created or retained for each $50,000 of Debenture amount, except 1 job per $100,000 for "small manufacturers."