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To our Lending Partners:


Why use 504?

You will have one more solution for your growing business customers who need financing!

If you have an on-going relationship with the borrower and the project makes sense but there are lending limits to consider, a credit enhancement is required to get your loan through your approval process, or the customer only wants to pledge the asset being financed, then the SBA 504 loan is the perfect option for you.

You typically get a 50% loan to value ratio and you are able to make a loan to a business customer that might not have worked with conventional financing. Additionally, the business borrower gets to retain more working capital and continue to grow the business.

Why 504 for a project instead of 7a loan?

504 is specifically designed for fixed assets, whereas 7a may have multiple uses. When you make a 7a loan instead of a 504 loan, you may have to require a greater down payment, and to meet SBA guidelines you may have to tie up additional assets for collateral, not just the project assets. This can put a strain on your borrower.

When you make the participating loan on a 504, you have the first lien position, but not a guarantee. Therefore, you have NO ongoing fees to pay or reporting to provide. You do not have to be concerned with future actions and modifications to determine if they fall under your unilateral authority OR require SBA’s prior approval. Your only requirements are to notify SDC and work with us in the event that a loan goes into default.

How is a 504 loan/project structured?

Southern Development Council, Inc. partners with lending institutions in order to provide financing through the SBA 504 Loan Program. The typical loan structure is a 50/40/10 split in which the lending institution finances 50% of the total project costs, SDC lends 40% of the total project costs through the SBA, and the remaining 10% is a required equity injection from the borrower. If a project is deemed "Special Purposes," an additional 5% equity injection is required making the structure a 50/35/15 split. Also, if the borrowing operating company is a newly formed entity (2 years or less) it is considered a "start up," in which an additional 5% equity injection is required with a 50/35/15 split. If a project is both special purposes and a start up, then it is a total of 10% additional equity injection required which makes the structure a 50/30/20 split. For recording of mortgages and/or UCC filings, the financial institution takes the first lien position and SDC/SBA takes the second lien position.

What projects are eligible and what are the costs?

SBA 504 financing is used to acquire, construct, renovate or expand an owner occupied facility. It can also be used to acquire major machinery and equipment with a useful life of at least 10 years. Up to 1/3 of project funds can be used for eligible debt refinancing (fixed asset related debt only). In addition to the acquisition and construction costs, the “soft costs” (appraisals, environmental, construction interest, closing costs, etc.) can also be financed in the 504 loan. This allows the business to preserve working capital.

What is the project size range?

Project sizes typically range from $200,000 to $20,000,000 (our largest to date) with the 504 loan size ranging from $80,000 to $5,000,000. Due to the typical 50/40/10 split, the SBA portion cannot exceed 40% of the project. There is also an overall cap on the SBA portion of $5,000,000. There are special circumstances for manufacturers and energy efficient "green" businesses that allows the total SBA portion cap to be $5,500,000. The financial institution's portion can exceed 50% of the project total if needed, which enables larger projects to take advantage of the benefits of the 504.

What is your role as the lender?

The first mortgage lender processes its loan as it would any conventional loan request. Southern Development Council and the bank can work together to collect documents from the borrower and structure the deal. Once approved, the bank will utilize its own loan documents to close their loan.

Generally, the bank provides “interim” or “bridge” financing while Southern Development Council’s 504 loan is a permanent take-out loan. Thus, the bank would provide the full 90% financing up front during the construction, renovation, or closing period based on the 504 commitment to take out the applicable portion of the interim financing once the business occupies the property.

Since your loan is just that, your loan, there are no ongoing reporting or guarantee fee requirements once the 504 portion is funded.

At Southern Development Council, we strive to be the 504 expert and we help ensure that all SBA requirements are met so our lending partners can focus on the bank portion of the loan without having to memorize all of SBA 504 Loan intricacies.

Why should I use Southern Development Council?

Southern Development Council will work with you and the borrower to make the application process as easy as possible.


We are a fully autonomous Alabama company celebrating our 40th year of service and are proud to have brought to reality over One Billion Dollars in projects and over 21,000 jobs to our state. Southern Development Council was the first statewide CDC serving Alabama. Our Business Development Officers and staff have the experience necessary to deliver prompt, professional service every time you call. We have a dedicated support staff that includes loan assistants, financial analysts, and credit specialists all waiting to support you and your project.

SDC is the only organization of its kind endorsed by Alabama Banking Services, a division of the Alabama Bankers Association.

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