Lender Q&A: If your project includes both real estate and equipment, do you apply for multiple 504 loans?

Thursday, May 8, 2014 / Published in Featured News, Lender Q&A
Lender Q&A: If your project includes both real estate and equipment, do you apply for multiple 504 loans?

Question: If your project includes both real estate and equipment, do you apply for multiple 504 loans?

Answer by Jim Conroy, Senior Vice President

Not necessarily.  We can use a "blended useful life" calculation to complete one 504 loan transaction.  If the "blended useful life" of the project exceeds 15 years, the entire project is eligible for a 20 year 504 loan.  In the example below, the blended useful life exceeds 15 years so the $280,000 504 loan could be 20 years.

Example: 

 
 
Amount
% of Total Project
 
Useful Life
   Blended Useful Life (%*Life)
Purchase Real Estate
$500,000
71.4%
20 years
14.28 years
Purchase Equipment
200,000
28.6%
10 years
  2.86 years
Total Project
$700,000
100.0%
 
17.14 years
 
 
 
 
 
Bank – 1st Mortgage
$350,000
50.0%
 
 
504 – 2nd Mortgage
280,000
40.0%
 
 
Equity
70,000
10.0%
 
 
Total
$700,000
100.0%
 
 

 

 

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