What happens to a 504 loan if you sell or pay it off early?
Short answer
You can pay off a 504 loan by paying the full balance, unpaid interest and fees, and any prepayment premium in your note. A buyer can assume the loan only with SBA's prior written approval (13 CFR §§ 120.937, 120.940).
Payoff is allowed, but your note controls the cost. 13 CFR § 120.940 lets you prepay if you pay the entire principal balance, unpaid interest, unpaid fees and any prepayment premium the note sets.
The prepayment premium
SOP 50 10 8.1 calls it a repurchase premium (Sec. C, Ch. 2, Para. C.7, Para. C begins p. 270). SBA Form 1504, the debenture form, outlines the calculation. The Central Servicing Agent provides your note's prepayment schedule after funding. The primary sources we reviewed do not state one schedule for all loans, so read your own note.
If you sell
- A buyer can assume the 504 loan only with SBA's prior written approval (13 CFR § 120.937).
- A Certified Development Company (CDC) may charge an assumption fee of up to 1% of the outstanding principal balance (13 CFR § 120.971).
- Lien instruments on real estate must contain a due-on-sale clause (Ch. 2, Para. C.3).
If ownership changes
A CDC may not on its own approve any change in a borrower's ownership for 12 months after final disbursement (Ch. 2, Para. C.7).
Your bank loan
The third party loan has its own prepayment terms, and those vary by lender. Its lien is subordinate to the CDC and SBA lien for prepayment penalties (13 CFR § 120.921(e)).
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