in the business for at least 3 years for? Do you have good credit and 15% down? Talk to qualify 7a loans as commercial real estate for a long-term SBA with SmartBiz.
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What / CDC loan is for a real 504?
A Real SBA 504 / CDC loan is two loans, in fact. taken a loan from a bank, and the other that of a CDC (which is then assigned to the US Small Business Administration - "SBA") A bank typically loan up to 50% of the purchase price of the property, and the CDC to top up maximum of 40%. The small business purchase of property must pay a deposit or equity of at least 10% yield. This loan program can only be used to finance fixed assets, such as property and equipment ..
The advantages of a "CDC Loan" (be technically correct, we should say a SBA loan. However, we will use the phrase CDC loan confusion with other SBA avoid credit products) include the following :.
- The CDC loan for a 10 or 20 year term is is 20 years often much longer than a bank easily lend money to small businesses.
- The loan CDC at a fixed rate for the term of the loan, , which means that the monthly payments do not change. Banks are usually prefer floating rate loans (where practical interest and payments up and down with the market prices) or loans who resets (at interest rates higher predetermined time or down based on market prices.) [1945012[ the loan CDC is a low level below the market rate.
- The CDC loan a low down payment required, as little as ten percent. Most banks offer conventional products require a capital of twenty percent or more.
- The CDC loan can be used to buy equipment. Many banks require separate loans for the purchase of equipment that go into the room.
Why some loan officers do not tend the real 504 / CDC Loan
CDCs have to promote a complicated relationship with banks and loan officers , Loan officers are the top source of small business references to CDCs. However, some loan officers do not feel pressure to make transfers to CDCs. As the economy has improved in recent years, the banks have made efforts to increase their commercial real estate loans. Many banks use bonuses loan officers as a tool to increase their lending. Loan officers have a financial incentive as much money as possible to a borrower, loan, the loan corresponds to the drawing in standards of the Bank. If a loan officer partner with CDC to provide a small business loan is available, they are missing for the bank to have the opportunity to finance 80% of the property purchase, instead of 50%.
There are reasons why other loan officers do not promote CDC loans. One is speed. The process moves slower when it is involved in more than one unit. The second is the formation. Many loan officers are more familiar with the program 7A Loan SBA, and do not know enough about the 504 program to recommend it. A third reason is that the banks are seeking to sell the guaranteed portion of a 7a loan for fee income.
Some myths about CDC loans Told Get
There are a ton of additional paperwork for these loans. "Simple is not it," says Kristin Wood. With the exception of a few documents of paperwork is the same for a SBA 504 loan as. For a conventional loan
There are large prepayment penalties. "The penalty is currently starting to below 3% and decreased by 10% - 20% per year," says Kristin Wood. Downstairs there is the addition of Ms. Wood provided which is closer to the exact calculation of punishment. However, the early repayment is not high.
The loans are not assumable. If you refinanced the bank loan, the CDC loan must be paid off. "The loans are assumable," says Kristin Wood. If a small company refinanced the bank loan, the loan from the new lender be senior to the CDCs loans, just like the original bank loan. With rates as low as at present, the ability to accept a fixed rate SBA loans in the range of 4.5%, without through the entire application process is a big advantage for buyers and sellers.
The interest rate and total cost of a CDC Loan
These costs apply only to the CDC part of the real 504 / CDC loans. Please note, the bank part of the loan is negotiated separately between the small business and banking.
| year fees and interest | 10-year loan | 20 years Loan |
|---|---|---|
Interest Rate | 5-year Treasury (around 1.5%) + 0.38% | 10 Year Treasury (around 2.0%) + 0.48% |
| CDC service fee | 0,625- 2.00% | 0.625 to 2.00% |
| central service counter Fee | 0.1% | 0.1% |
SBA guarantee Fee | 0.94% | 0.94% |
Total Fees and interest per year | 3.55% - 4.2% | 4.15% - 4.57% |
Kristin wood of SPEDCO a detailed explanation of both the current fees for the loan, as well as a time fees. We have made these statements in the Addendum section at the end of the article under her bio available.
The CDC fee goes to support the operation of the CDC in the direction, set the minimum and maximum SBA fee. However, the individual CDC has discretion on the amount, the fee within these limits.
The management fee goes to Wells Fargo, the Central Service Office, for processing and recording loan payments. At 0.1% of the loan value, it is not an essential part of the costs.
The SBA fee compensates the Small Business Administration for the risk of default.
fees, a significant form of the cost of the loan CDC. However, still the cost of a CDC loans much lower than in a conventional commercial loan, or even a 7A loans.
If the loan is originally made, there are some initial "one-time" cost. These costs are usually about 2.5 to 3.0% of the value of the loan. (See sheet attached, the Schuldverschreibungs describes pricing)
Bottom Line
If you buy commercial real estate, which should be used for the operation of your company, a small business should long-term fixed rate loans look in those who have below market interest rates. Do not be a loan agent you can keep them from pursuing these loans with talk of high prepayment penalties and lots of paperwork.
If you do not have at least 3 years in the business with good credit, and 15% down, talk to SmartBiz about 7 commercial real estate for a long-term SBA loan to qualify.
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Kristin Wood, CEO of SPEDCO
supplements
HOW SBA prepayment penalty CALCULATION
MONTH servicing fees
STATEMENT BY THE TIME CHARGES
How to Calculate SBA prepayment penalty
one of the facets of the SBA 504 loan program that only ever seems bankers to surprise not know how easy it is to calculate the prepayment penalty, but also how small this penalty generally is.On SBA 504 loans a prepayment penalty it is judged whether the loan is paid in the first half of the loan maturity in advance. The prepayment penalty is on a sliding, decreasing scale penalty is calculated on the thought Debenture interest rate, not the effective interest rate of the loan.
The penalty is on the Schuldverschreibungs rate calculated in the time the loan was financed.
For a loan with a 20-year period, the penalty applies to the first 10 years of the loan and reduced by 10% each year.For a loan with a 10-year period, the penalty applies to the first 5 years of loan and reduced by 20% each year.Example suppose if a 20-year loan was funded, the effective interest rate for the month of August 2014 4.960% and the interest rate Schuldverschreibungs 2,880%. The prepayment penalty is reduced by 10% of the bond rate per year; in other words, it falls by a factor of 0.288% each year.
Year | Prepayment Penalty |
|---|---|
1 | 2.880% |
2 | 2.592% |
3 | 2.304% |
4 | 2.016% |
5 | 1.728% |
6 | 1.440% |
7 | 1.152% |
8 | 0.864% |
9 | 0.576% |
10 | 0.288% |
monthly maintenance fees
1 to take over. An ongoing monthly SBA guarantee fee currently equal to 9375 / 1000e of one percent per year (0.9375 1.0%) of the principal amount of the bond, calculated every five years, beginning with the first payment.
NOTE: Central Service Office (Wells Fargo) is replaced by 3 / 64th of this fee and will have the rest of the fee SBA
2 adopted. Central Service Office (currently Wells Fargo) in the amount of one tenth of one percent per year (1/10 of 1.0%) calculated on the outstanding balance of the bond in five-year intervals, starting with the first payment.
. 3 CDC service fee of five-eighths of one percent (0.625 1.0%)
NOTE: The CDC has at least 0,500 reserve this fee, as required by SBA regulations and guidelines. In addition to pay by this service charge CDCs 1/8 of one percent (0.125%) on SBA each month.
Pro SBA rules, the minimum CDC service fee to be 0.625% / year, and the maximum of 2% / year. For rural areas, the maximum of 1.5% and 1% be anywhere else without prior SBA approval.
explaining a time fees
There are a number of fees associated with an SBA 504 loan to get. This is a one time only the costs that are financed with the bond. The fees are made up of the following components :.
- a processing fee of 1.5% will be paid for the marketing to SPEDCO, screening, packaging, closing and overheads
- A reserve / guarantee of 0.5%. Loan losses and administrative costs will compensate paid to the SBA.
- A $ 00 (usually) legal fees for SBA attorney pay an opinion of counsel for the transaction prepare, which also covers the transaction the borrower. The surplus will be used to cover the cost of the title insurance and recording documents. financed up to $ 2,500 as part of the project).
- A financing totaling 0.25% for the Development Company Funding Corporation collected as the Fiscal Agent of the program for the sale of the management and financing of debt, negotiation and management of monthly obligations process. It also includes the cost of printing and obligations pooling and certification costs.
- A bond subscription fee of 0.4% at the Bank of New York / J.P paid. Morgan Chase (0.375% for the 10-year loan) for the safety drawing, marketing, done the work sales on a monthly basis, and for the legal work with the monthly funding connected.
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Note:
a participation fee in the amount 0.5% of all mortgages that guaranteed the SBA mortgages are senior, must in the form of a Certified inspection at time of SBA submitted closure. These funds are given to the SBA.
Example:
1) | Sample Bonds amount (40% project) | $400,000.00 |
|---|---|---|
2) | Plus SBA reserve / guarantee fee of 0.5% (0.005% x Line 1) | 0.00 |
3) | Plus SPEDCO handling fee of 1.5% (0.015% x Line 1) | 6,000.00 |
4) | Plus Funding fee of 0.25% (0.0025% x Line 1) | 1,000.00 |
5) | CDC/SBA Right- Fee | 2,000.00 |
500.00 | ||
6) | SUBTOTAL (Lines 1 -4) | $409,000.00 |
7) | Plus Subscription fee of 0.4% (0.004% x Line 6) | 1,541.25 |
SUBTOTAL | $410,541.25 | |
8) | TOTAL (Rounded to the nearest thousand) | $411,000.00 |
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