Most lenders understand that you can finance up to 90% of the acquisition and construction of commercial real estate as well as heavy machinery and equipment using the SBA 504 loan program. What many don't know is that the 504 program can also finance costs related to obtaining the financing such as the appraisal fee, environmental engineer costs and title insurance.

The types of costs that can be included in an SBA 504 loan include:

• The acquisition and improvement of the project asset itself (i.e. real estate, equipment)

• Professional fees directly attributable and essential to the project. These can include the appraisal cost, environmental report cost, title insurance cost, survey, property and flood insurance premiums, interest and points on the construction loan, permit and utility hook-up fees, recording fees, etc

• In projects involving construction, a contingency reserve for cost overruns not to exceed 10% of the construction cost.

• Rigging and installation expenses associated with machinery and equipment projects.

If the sum of all costs does not exceed 90% of the appraised value of the project as completed, the costs can be included in “eligible projects costs.”  If the sum of all costs exceeds the 90% loan-to-value, you may, instead, treat all of the costs directly related to the SBA 504 loan financing as “eligible closing costs” and finance those costs irrespective of the 90% loan-to-value cap.  The result is that the loan-to-value may, and often does, exceed 90%.  In addition to all fees payable to the SBA, “eligible closing costs” include title insurance, recording fees and survey charges related to the SBA 504 mortgage.  The key point here is that the SBA 504 project financing can include certain soft costs and will ordinarily exceed a 90% loan to value after inclusion of SBA fees and “eligible closing costs”.

It should be noted that any of the above costs incurred by the borrower prior to the SBA 504 financing approval may still be eligible to be included in the 504 project. The SBA allows eligible expenditures within 9 months of application to be included in the project. The exception to the 9 month rule is land, which can be included regardless of the purchase date provided it is used in the project. If the land was purchased within 2 years from the application date then the cost value is used; if greater than 2 years then a current appraised value is used.

Want to structure a project with maximum use of the SBA 504 loan program?  Call us!