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SBA 504 loans are co-lender transactions whereby a commercial lender teams with an SBA CDC (Certified Development Company) lender and a borrower in a 50 percent/ 40 percent /10 percent structure.
These loans are attractive for several reasons:
• They mitigate commercial lenders’ risk by giving those lenders first-lien priority on collateral assets (usually owner-occupied real property, but in 10-year deals also certain capital equipment) in a better-than 50 percent loan-to-value structure that facilitates an expanded, lower-risk loan portfolio.
• They offer low, fixed-rate, 20-year money (current rates with all fees amortized have been near 4 percent) on the 40 percent SBA loan (generally in second priority).
• They usually require only a 10 percent down payment from a qualified borrower.
For priority CDC lenders, and, consequently, for borrowers and commercial lenders, 504 deals have just been made easier. Under new regulations recently promulgated by the SBA, priority CDC’s (those SBA lenders having performing portfolios and passing grades on overall operations), closing and review procedures have been further streamlined.
Designated 504 closing counsels (lawyers trained to do these deals faster) now have greater responsibility for review of documents submitted to SBA district counsels, while district counsels, themselves, are required to review fewer documents. Certain of the documents SBA district counsel continue to review have been modified (including certain documents that commercial lenders must execute) and required closing-counsel legal opinions have been enhanced.
Moreover, perhaps the most practical change in the new regulations is the explicit SBA blessing of designated closing counsel also closing for commercial lenders on the same co-lending projects. The SBA has authorized a form waiver that can be used in these transactions, provided that the following requirements are met: