Wessex 504 Corporation

The 504 loan program is designed to assist healthy, growing businesses secure long term, below market, fixed rate financing for the purchase of real estate or capital equipment.

Typical Financing Structure of the 504

  • Bank or other lender finances 50% of the project cost and takes a first lien position on the financed assets
  • Wessex 504 Corporation, through the SBA 504 loan, finances 40% of the project costs (maximum Wessex 504 portion is $5 million or $5.5 million for manufacturers) and takes the second lien position
  • Business Owner contributes low down payment of 10% of project costs

Typical Project

Cost 
Purchase building$7,000,000
Renovations$650,000
Equipment$300,000
Soft costs$50,000 (i.e. appraisal, architect fees, closing costs)
Total:$8,000,000
Financing 
Bank - first mortgage$4,000,000 (50%)
SBA 504 - second mortgage$3,200,000 (40%)
Business down payment$800,000 (10%)
Total:$8,000,000

Key Advantages of SBA-504 loan over traditional business loans

  • Low down payment - The business owner puts only 10% down, borrowing up to 90% of the total financing needs, thus preserving valuable working capital for the business.
  • Long term financing - Repayment periods are longer than conventional bank loans - 20 years fully amortized for real estate loans (10 years for equipment only loans). The borrower's monthly loan payment is more affordable, improving cash flow.
  • Below-market, fixed interest rate -The below market, fixed interest rate protects against future rate fluctuations, providing low and predictable monthly payments.

Terms, Rates and Fees

  • The bank portion of the loan is typically amortized with a minimum term of 10 years up to a maximum of 25 years. Rate term and fees are negotiable between the borrower and bank. The bank is responsible for an SBA first mortgage lender fee, which is 0.50% of the bank loan.
  • The Wessex 504 loan is a 20 year fixed rate loan (10 years for equipment only loans). The interest rate on a 504 loan is based on the current market rate for five-year and ten-year U.S. Treasury issues. All fees are financed into the 504 loan, with the exception of the $1,500 application fee.