The SBA 504 loan product continues to be in very high demand. With historically low 25-year fixed interest rates (2.81% in July) and low down payment options (10-15%), it has very quickly become our most popular loan product.
As great as the 504 loan product is, it is limited to only financing fixed assets like real estate and equipment. For a new construction project, eligible costs typically include items like land acquisition, construction improvements, contingency, soft costs, FF&E, interest carry and finance fees — essentially everything associated with designing and building the self storage facility.
Since things like start-up costs and lease-up reserve (working capital) aren’t eligible to be included in a 504 loan, we often offer a SBA 7A loan to cover up to 90% of the project’s post construction needs.
For a recent loan, the borrower came to the bank with a general development budget. We worked with the customer to better define their project costs: obtaining an estimated draw schedule from their general contractor, getting estimates on start-up expenses and overlaying our proposed debt structure to their lease-up schedule to calculate the working capital needed to break even.
Our knowledge of both loan programs allowed us to break down the project into different SBA buckets and give the borrower access to the best loan product by line item — 504 to build it and a 7A to start up the business and get it to break even.
As a top ten 504 lender in the country and a Preferred Lender for 7A loans, Bank Five Nine has the ability to tailor our SBA financing solutions to best meet the borrower’s needs.
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Casey Diderrich
Bank Five Nine
