Making the SBA 504 Loan Work For You

Making the SBA 504 Loan Work For You

Saavy hotel owners are taking advantage of recent changes to the SBA 504 Loan. They have access to all the benefits of conventional bank financing with lower rates, less money down, and longer fixed terms.

HR 5297, The Small Business Lending Bill, was signed into law by President Obama on September 27th. The bill changes the SBA 504 Loan, making it an even more attractive option for banks and borrowers. Put simply, the SB 504 Loan is the best financing option available for hotels today. Here’s why:

1) Increased Loan Amounts

With the latest changes, the total loan limit for a standard borrower increased from $1.5 million to $5 million. If your hotel is designed and built to reduce energy consumption by at least 10%, an easily attainable goal for HiFive’s Green experts, your loan limit can be increased from $4 million to $5.5 million.

2) Reduced Fees

The 504 fee waivers for banks (.5%) and borrowers (1.5%) has been extended through December 31, 2010, or until the $505 million appropriated has been used. This makes the loans even more affordable for borrowers.

3) Low Down Payment

Preserve your working capital with a low 20% down payment (rather than the 35% to 40% required for conventional loans). In addition, the down payment can be cash and/or equity in land.Note, some borrowers may be asked to reserve more cash if the business has a lack of historical debt service coverage.

4) Low Fixed Rates and Longer Terms

The low 504 interest rate (usually 1.5% to 2% lower than conventional loans) increases your cash flow. The loan is tied to the treasury market and is fixed for the life of the loan. Maturities of 10 to 20 years are available. And, with no balloon payment, you won’t be forced to refinance your SBA commercial loan at any time.

5) Second Lien Position

The SBA 504 Loan is guaranteed and in second position. The bank has less risk and more incentive to approve the loan and offer competitive terms. The typical SB 504 Loan includes:
20% Owner Equity;
30% SBA 504;
50% Senior Lender.

Take Advantage Now, Before It’s Too Late!

SBA 504 Loans offer clear advantages to Hotel owners. The SBA Loan proceeds can be used for certain soft project costs, and with higher loan limits you now have access to loans for multiple, or larger projects. The SBA prepayment penalty declines for the first half of the term of the loan, and then the penalty is waived. And, SBA Loans are assumable, as long as the buyer qualifies under the SBA. We suggest you find a singlesource company as a partner for your SBA Loan. They provide design, construction, Green expertise and SBA Lending support for the best and fastest results. As one HiFive customer explained, “With land, commodities, and interest rates so low, my cost basis is significantly lower. My cash flow and ROI (Return On Investment) will be much higher than the hotels I built a few years ago!”