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Let SBA help
The 504 loan program offers funds for small companies'
expansion
By Joanne Friedrick
March 01, 2010
For one-third of the cost of his lease, John Murray is now
the owner of a 24,175-square-foot waterfront building that
houses M&B Sea Products, a scallop-harvesting and
processing operation in New Bedford, Mass.
Murray, president and owner of the company, was able to
secure in October a 20-year, fixed rate below 4 percent through
a Small Business Administration 504 loan. The deal puts cash
back into his business and even helps augment his workforce of
27.
That's the idea behind the 504 loan program, explains Merril
Ferber, director of
communications and out-reach for The
National
Association of Development Companies (NADCO), the
trade organization for Certified Development Companies (CDCs)
that provides financing to small businesses through the
Development Company Economic Development Loan Program, or 504
program. There are 260 CDCs that cover all 50 states and Puerto
Rico.
Small businesses looking to buy, construct or expand a
building or buy major equipment, including fishing vessels or
other commercial boats, are candidates for the 504 loan.
There are other criteria, ranging from being a for-profit
business to occupancy requirements for the building. Net worth
of the borrowing company can't exceed $8.5 million, and net
profit after taxes can't exceed $3 million per year for the
past two years.
However, says Ferber, a big part of the approval process is
linked to job creation
or retention.
One job must be created or saved for every $65,000 of the
loan. "The hope is it's an expansion," she says, "but it also
covers
retention."
The program has existed in some form or another for 28
years. It began as the 503 program and evolved into the 504
program in the mid-90s.
Since 1997, when record-keeping of this kind began, 75 loans
nationwide have been specifically tied to seafood-related
businesses, although that doesn't include businesses such as
retail stores or restaurants that may have a seafood component,
says Ferber.
Murray looked at traditional bank financing and some state
programs for capital to buy the building, "but nobody came
close to [the 504] in terms of rates."
Not only were the rates favorable, says Murray, but the
borrower fees were eliminated as a benefit of the
government's
2009 economic-stimulus package.
This added perk was in place for a year and ended last
month, although at press time there was legislation in the
works to expand that fee waiver through October. These fees can
range from around 0.1 to 0.4 percent of the total loan.
The loans are especially appealing to small businesses, says
Ferber, because the borrower is responsible for a small,
initial investment.
Fifty percent of the loan is financed as a first mortgage by
a traditional bank,
non-banking institution or government
agency; 40
percent as a second mortgage by the SBA 504/CDC;
and the remaining 10 percent as a down payment by the
borrower.
Murray worked with Mike Topalian, loan specialist and
manager at Bay Colony Development Corp., a CDC in Waltham,
Mass., which handles 504 loans for several New England
states.
Topalian provides 504 loans to about three or four
seafood-related businesses each year. At the same time M&B
Sea Products was securing its $1.5 million loan, Topalian was
also working with The Atlantic Red Crab Co., another New
Bedford seafood company.
In that instance, the
company was able to buy in October an
11,575-square-foot industrial condo for $830,000. With the
purchase of the new facility,