SBA 504 Construction Loans Explained [2023]

SBA 504 Construction Loans Explained [2023]Show more

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An SBA 504 loan is a hybrid loan that combines a conventional bank loan and an SBA loan, typically with a 10% down payment and 90% loan-to-value ratio. The advantages of an SBA 504 construction loan include lower down payment requirements and the ability to close the loan while the construction process is ongoing. The SBA portion of the loan has a fixed rate for 25 years, while the bank's terms may vary. SBA 504 green loans offer additional funding for green construction projects, allowing for up to three more projects with a higher SBA allotment. The draw schedule for an SBA 504 construction loan involves the bank providing interim funding to cover the CDC (Certified Development Company) piece until construction is completed.

Timestamps:
(00:28) The SBA 504 loan, with a focus on construction loans.
(01:17) What is a CDC?
(02:40) Advantages of an SBA 504 construction loan versus a conventional loan
(03:50) A lot of banks have actually suspended their construction programs
(04:20) The time it takes to get approved for an SBA 504 construction loan depends on several factors.
(06:32) The interest rate and terms for the bank's first lien depend on the individual lender.
(08:18) Eligible property types and business types for an SBA 504 construction loan
(09:39) Will they allow for equity from another property instead of an actual cash injection?
(10:34) The down payment required for an SBA 504 construction loan
(11:56) The seller carryback does not have to be on standby; the seller can also receive payments.
(12:13) The maximum SBA 504 construction loan amount is determined on a case-by-case basis.
(13:03) Advantages of SBA 504 green loan for construction projects.
(14:53) Combining SBA 504 and SBA 7a loans for working capital in a construction project.
(15:23) Question about the draw schedule for SBA 504 construction loans
(16:55) Debentures are often misunderstood in the context of SBA 504 loans.
(18:11) SBA rates are decreasing, making SBA 504 loans more attractive for large construction projects.
(19:24) Other banks may have an appetite for funding high-risk loans
(19:57) Which loan program fits your business needs?
(21:34) The general qualifications from a 7a to 504 refinance
(23:26) Utilize the SBA loan products to grow your net worth because it’s a great opportunity for entrepreneurs
(24:50) SBA financing for self-storage and the 504 loan option.
(25:59) Requirements for financing existing self-storage properties with cash flow and management agreements.
(27:05) Costs that can be financed within the 90% loan-to-cost.
(28:24) Considerations for financing renovations
(29:22) Structuring the loan to meet underwriter requirements
(30:46) Comparing SBA 504 loans to traditional loans and the benefits of higher leverage.
(32:09) Factors affecting construction loans
(33:01) Importance of having all pieces in place before closing on an SBA
(35:39) Utilizing experience and cash flow from an existing self-storage business for a new construction project.
(37:21) Benefits of using SBA loans for self-storage facilities and banks' preference for the industry.
(39:31) Understanding the special use designation for cold storage and its eligibility for SBA financing.
(41:12) Importance of tax returns as source documents.
(42:18) The need for financials tied to a consolidated tax return when multiple properties are involved.
(43:10) The initial document checklist for the loan application process and the ease of the SBA process.
(45:18) Involvement of CDC in SBA 504 loans
(47:44) Clarifying the fixed-rate nature of the second lien and the favorable conditions for investors involved in the SBA-guaranteed loan.
(49:18) Benefits of 504 Loan Refinancing
(51:40) Upside and potential in self-storage
(52:04) Benefits of SBA financing and borrower considerations in self-storage purchase
(55:51) 504 loans are the best commercial real estate financing available out in the market today
(56:20) Key Takeaways on self-storage deals and the opportunity in self-storage as a business
(57:55) Turning around non-cash flowing properties and consideration for experienced operators

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#SBA504 #constructionfinancing

About Beau: Beau Eckstein is a real estate entrepreneur, TV personality, and commercial mortgage advisor, specializing in construction financing and multi-family lending.

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