What repayment terms do the loans in a 504 project carry?
Short answer
The 504 loan runs 10, 20 or 25 years, based on asset life. The third party loan must run at least 7 years beside a 10-year 504 loan, and 10 years beside a longer one. Source: SOP 50 10 8.1, Sec. C, Ch. 1, Para. D.2.
The 504 loan runs 10, 20 or 25 years, and the third party loan must run at least 7 or 10 years. Each loan has its own term.
The 504 loan
SOP 50 10 8.1 sets maturity at 10, 20 or 25 years, based on the remaining useful life of the property (Sec. C, Ch. 1, Para. D.2, p. 241).
- Real estate: a maximum of 25 years.
- Machinery and equipment: a minimum of 10 years.
- Mixed projects: the asset category with the majority of the proceeds sets the maturity.
The third party loan
- Minimum term of 7 years with a 10-year 504 loan.
- Minimum term of 10 years with a 20-year or 25-year 504 loan.
- With more than one third party loan, an overall maturity is calculated.
- A balloon payment must be justified in the loan report and identified in SBA's Terms and Conditions (Para. D.2).
- The note cannot have cross-default, deem-at-risk or other clauses allowing demand before maturity, unless the loan is in default (Para. B.1).
- The loan may close and begin amortizing before the debenture funds (Para. B.1).
13 CFR § 120.921 adds that the rate must be reasonable and the loan cannot be open-ended.
Rate hedges
Third party loans can use interest rate swaps. SBA is not a party to the swap and will not review it (Para. B.1).
Compared with 7(a)
A 7(a) real estate loan can run up to 25 years, plus any reasonable construction or renovation period (SOP App. 17, Para. A.3).
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