Understanding Fees and the Application Process
SBA 504 Loan Program
The SBA 504 Loan Program is a powerful economic development and business expansion tool to assist in providing beneficial terms and rates to help overcome financing challenges and reduce risk. Benefits of the program include:
- A below-market, fixed interest rate
- Financing terms of 10-, 20- and 25-years
- Up to 90% financing depending on project specifics.
The information below summarizes the costs & fees associated with the 504 loan program. It is important to note that the long-term interest rate savings typically more than offset the costs of financing and normally end up saving the borrower in total interest expense over the term of the financing.
Loan Processing & Closing Fees |
Out-of-Pocket
|
Financed Fees
|
|---|---|---|
| CDC Processing Fee | 1.5% | |
| SBA Guarantee Fee | 0% | |
| Funding Fee | 0.25% | |
| Underwriter Fee | 0.4% | |
| Total | 2.15% | |
| Plus: Closing Attorney Costs | $2500 | |
| Third Party Participation Fee | 0.5% of Bank Loan |
Hard costs for processing the loan include credit reports, flood certification, search & recording costs, environmental assessments, title insurance costs, appraisals and may vary according to financial structure, industry, and other factors.
**If the loan is approved by SBA, but for any reason does not close, the borrower is responsible for paying any hard costs for processing the loan.
Interest Rates
The effective interest rate for a 504 loan is based on the following factors:
Effective Interest Rate Calculation |
|
|---|---|
| Note Rate | Established monthly at funding |
| SBA Ongoing Guarantee Fee | 0.2475% – 0.6520% |
| CDC Fee | 0.625% – 2% |
| Service Agent Fee | 0.1% |
| **Total Effective Interest Rate | Total of all above items |
**Fees above are set annually and may vary from year to year
Rates posted monthly on the Dakota Business Lending website reflect the total “all-in” effective rate. The actual rate for any loan at funding is a fixed rate for the entire term. In a rising interest rate & growing inflation market, this helps to protect against rising costs on a portion of the financing project.
Application Process
A 504 project typically follows the process below.
Step 1: Apply
Application/ Processing/ Underwriting
Step 2: Approvals
Bank/ DBL/ SBA
Step 3: Construction
Bank funds 504 portion during construction
(if applicable)
Step 4: Close
Close on 504, Bank Permanent, & Bank Interim
Step 5: Funding
504 takes out Bank Interim
**The bank may choose to use the same note/notes for the construction financing as the final permanent and interim notes.
More information about the 504 loan process can be found here.
Questions?
Contact a loan officer in your area for more information.
