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SBA 504 Q&A

What can the SBA 504 loan program be used for?
What are the minimum and maximum project costs?
What is the maximum SBA 504 loan amount?
How can the Bank loan be structured?
What fees can the Bank charge?
What are the SBA closing costs?
What are the occupancy requirements for the business?
Can the property be owned personally and leased to the business?
What about an Environmental Report?
What about an Appraisal Report?
What are the eligibility issues of the SBA 504 program?



What can the SBA 504 loan program be used for?

  • Purchase of land or building
  • Land acquisition, along with building construction
  • Remodeling or rehabilitation of an existing building
  • Building expansion
  • Refinancing existing eligible loans
  • Tenant improvements
  • Equipment acquisition (with life expectancy of 10 years or more)

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What are the minimum and maximum project costs?

  • Minimum of $250,000
  • Maximum of $18,000,000 (depending on overall loan structure).


What is the maximum SBA 504 loan amount?

  • $5,000,000 or $5,500,000 for manufacturing companies and qualified energy efficient facilities.
  • 40% of the project cost for a multi- purpose facility; or up to
  • 35% of the project cost for a special purpose facility (restaurant, gas station, etc.); or up to
  • 35% of the project cost for a startup business (business owned less than 2 years); or up to
  • 30% of the project cost for a startup business in a special purpose facility.
  • There is no maximum loan amount for the Bank financing, but the bank must finance a minimum of 50% of the project cost for a start-up business and/or a special purpose facility.

How can the Bank loan be structured?
  • Amortization – 10 to 30 years for real estate; 7 to 10 years for equipment
  • Term – minimum of 10 years for real estate; minimum of 7 years for equipment
  • Interest rate will be at market rates (fixed or variable).


What Bank Fees are eligible for financing within the program? 

Normal bank costs such as:
  • Interim Points/Loan fee,
  • Documentation fee,
  • Processing fee,
  • Appraisal
  • Environmental report
  • Title fees
  • etc.

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What are the SBA closing costs?
Approximately 2.7% of the SBA loan, plus legal costs ranging from $1,000 to $2,500 all of which will be financed by SBA.

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What are the occupancy requirements for the business?
  • 51% if acquiring an existing facility (49% can be permanently leased out)
  • 60% for a new construction project with the potential that the business will occupy some additional space within three years, and a total of 80% within ten years. The balance of the building (20%) can be permanently leased out.

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Can the property be owned personally and leased to the business?
Yes. In addition, the ownership in the real estate does not have to be the same ownership of the business, but a guarantee by the business and the owners will be required

Additionally, the buyer/borrower does not have to have any ownership in the business, but the business and any 20% (or greater) owners of the business must be a guarantor on the SBA loan

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What about an Environmental Report?

  • An environmental questionnaire is required on all properties
  • A TSA is required on all properties, except base land that has never been farmed
  • A Phase I Environmental Report may be required if additional investigation is needed


What about an Appraisal Report?

  • The appraiser must be qualified to prepare a commercial real estate appraisal report.
  • Submissions to SBA can be subject to receipt of an appraisal report.
  • Complete appraisals are generally required. Limited appraisal may be acceptable. Restricted appraisals are not acceptable.

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What are the eligibility issues of the SBA 504 program? 

  • The business, plus affiliate companies, must have a net worth of less than $15.0 million
  • The average net profit of the business cannot be more than $5 million after taxes in the last two years.
  • The business must create and/or retain jobs or meet one of the following Public Policy Goals:
  1. Expansion of an Export Business (at least 10% of last year’s sales must be from export sales)
  2. Expansion of a Minority-Owned Business (at least 51% ethnic minority interest)
  3. Women-Owned (at least 51%)
  4. Veteran-Owned (at least 51%)
  5. Subject property is located in one of the following areas:

a. Rural Community
b. Enterprise Zone (federal or state designated)
c. Redevelopment Area (low/moderate income area with slum or blight)
d. Hardship community due to federal budget cutbacks (i.e. base closures). All of Sacramento County is considered a “hardship community”.

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