The loan process begins with either a business concern or a lender contacting SomerCor to discuss the project, at which time a loan checklist and additional forms will be sent to the potential borrower or bank. At any point in the process, a professional SomerCor employee will gladly meet with the borrower, banker or both in order to discuss the project breakdown and any questions that may arise. Upon receiving the completed checklist from the borrower, SomerCor prepares a loan analysis, which is submitted to our internal loan committee for approval (usually within 2-4 days).

With the committee’s approval, a SomerCor representative will meet with the borrower to have all the documents signed in the completed 504 loan package. After the signing, the loan is submitted to the Small Business Administration for the authorization required to sell the bonds. SomerCor generally receives written SBA approval in 5 business days. The entire approval process takes about 20-28 days from the receipt of the completed loan checklist.

• By using the 504 Loan Program, smaller sized businesses are able to access the previously inaccessible public capital market and secure long term, fixed rate financing for a good share of the cost of planned expansion projects.
• The low 10% down payment greatly assists growing businesses by preserving working capital for continued growth.
• The interest rate on SomerCor’s portion is an attractive 20-year fixed rate.
• The business has the ability to finance all project related furniture, fixtures and equipment.
• Soft costs can also be included in project financing. These include the following: appraisals, engineering and architectural costs, title searches, title and flood insurance, recording fees, zoning changes, environmental studies, permit fees, and other project related costs.
• The term of SomerCor’s loan more closely matches the life of the assets being acquired or improved.
• The private sector lender can more competitively position its own market terms and rates on 504 loan projects. Because the SomerCor loan is subordinated to the bank, the bank gets a first lien on all the assets with only a 50% loan to value.
• The 504 loan is fully assumable. If, during the life of the loan you decide to sell the project property, SomerCor’s portion of the loan can stay with the property, as long as the buyer qualifies under program guidelines.

Processing Fees

• Aproximately 0.66% of the SomerCor loan plus $2,500 for closing costs, financed into the loan.
• Amortized for 10 or 20 years, depending upon asset purchased.

Annual Servicing Fee

• Currently 0.625% of outstanding balance calculated into monthly amortization payment

Application Fee

• $1,000 application fee prior to submission of package to SBA.

Bank Fees

First Mortgage Lender Fee

• Currently waived as part of the American Recovery and Reinvestment Act.

To be eligible for a SBA 504 loan, a business must satisfy these general requirements:

• The project must be located within the state of Illinois.
• If the project involves the purchase of an existing building, the business must occupy at least 51% of the space. In projects involving new construction, the business must occupy at least 60%-80% of the space.
• The business concern must be for-profit.
• The business must have a net worth of less than $8.5 million and less than $3 million in annual after tax profits.
• The business owner must be a U.S. Citizen or resident alien.
• If equipment is to be purchased, the expected useful life must be at least ten (10) years.

Eligible use of funds:

• LAND – The project may include land, regardless of how long it has been owned. Previously owned land may be counted towards equity at the purchase price, if purchased within 2 years. Any land purchased prior to this 2-year period must be appraised and the appraised value can then be counted toward your equity.
• LAND IMPROVEMENTS – Improvements such as grading, paving landscaping, curb and gutter work can also be included, up to 5% of the total project.
• PURCHASE OF EXISTING BUILDING AND BUILDING IMPROVEMENTS – The cost of purchasing and improving an existing building are eligible, as long as the purchase price meets an acceptable appraisal, and the business occupies at least 51% of the total space. The improvements can include heating, electrical, plumbing, facade expenditures and roofing costs.
• NEW BUILDING CONSTRUCTION – Construction costs are eligible, as long as the business occupies at least 60%-80% of the space upon the project’s completion. A contingency reserve for cost overruns of up to 10% of construction cost can be included in the calculation of the total project. Buildout of space not occupied by the business is not eligible.
• FURNITURE AND FIXTURES – The cost of furniture can be included as long as they are less than 10% of the total project.
• MACHINERY AND EQUIPMENT – All costs related to the purchase, dismantling, transportation, or installation of machinery and equipment can be included, as long as the assets have useful life of at least 10 years.
• SOFT COSTS – All professional fees directly attributed to the project are eligible. These include: appraisals, environmental studies, title insurance fees, architect fees, engineering fees, electricity, gas and water hook-up charges, and related legal and accounting fees. Additional expenses may apply.
• INTERIM FINANCING COSTS – Interest and points on the interim construction loan can be included in the project cost. Any expenses incurred towards the total cost of a project, other than a land purchase, must be made within nine months prior to the date a completed loan application package is received for consideration.
• REFINANCE OF EXISTING DEBT – Up to 50% of total project costs can be used to refinance existing fixed asset debt.

If you have any questions about whether a cost or expenditure may be included or considered under the SBA 504 loan program funding, please contact SomerCor 504, Inc. at 312.360.3300.

The structure of the 504 Loan Program makes it unique among all of the debt financing options available to business borrowers. Three parties are usually involved:

• A Private sector participant (usually your bank) will typically provide 50% of the required financing for an eligible project.
• SomerCor 504, Inc. will typically provide 40% of the required financing on an eligible project- this is the 504 Loan Program share.
• The business itself will contribute a minimum of 10% of the required financing as an equity injection.

From 1:

• Although usually a bank, this private sector participant may also be an insurance company, non-bank lender, or even a seller of the project property. In return for their share (50%) of the required financing, this private sector lender will usually take the first collateral position ( a first on the assets being financed. This lender will charge going market rates for its share of the project and their loan must have at least a ten year term, although rate adjustments can be made at any time.

From 2:

• SomerCor raises the money for its share of the project cost through the monthly sale of bonds on the Capital market. This bond is 100% guaranteed by the full faith and backing of the U.S. Small Business Administration, which makes it an attractive instrument to potential buyers in the public securities market. In return for its share of the project financing (up to 40%), SomerCor takes a second collateral position (second mortgage) on the project assets for 20 years, at an interest rate fixed for the life of the loan and set by the market in the month that the bond is actually sold.

From 3:

• This is usually provided by the business borrower in the form of cash or land. If any of this injection is borrowed and collateralized by the project assets, that loan must be subordinated to SomerCor’s financing and the term of that loan must be at least the same as SomerCor’s term.

It is almost impossible for a smaller sized business to be able to secure 90% financing on a project. It is worth nothing, too, that although this required 10% injection is usually in the form of cash, in the case of an expansion or renovation project it is possible to count existing equity in project land or equity in an existing facility as part, or al, of the required equity contribution to a specific project.

Sometimes an additional equity contribution into a project is necessary. In projects involving a “start-up” business (less than 2 years old), or, in projects with property that has a specialized, single-purpose use (for example, as gas station), the minimum equity contribution must be 15% and the maximum 504 loan program portion is 35%. If the project involves both a startup business AND a specialized, single purpose use property, the minimum equity contribution from the business entity must be 20% and the maximum 504 Loan Program portion is 30%.

Project Costs

What is a 504 Loan?

The 504 program enables growing businesses to secure long-term, fixed-rate financing for major fixed assets through SomerCor 504, Inc. The program is designed to promote local economic development by helping healthy, growing businesses finance the acquisition of long-term fixed assets, such as land, buildings, machinery and equipment, or the building, modernizing, renovating or restoring of facilities.

Why the 504 program?

SomerCor raises the money for its share of the project cost through the monthly sale of bonds on the Capital market. This bond is 100% guaranteed by the full faith and backing of the U.S. Small Business Administration, which makes it an attractive instrument to potential buyers in the public securities market. In return for its share of the project financing (up to 40%), SomerCor takes a second collateral position (second mortgage) on the project assets for 20 years, at an interest rate fixed for the life of the loan and set by the market in the month that the bond is actually sold.

How much can I borrow under the 504 program?

Under the 504 program a project can be any size, but the SomerCor portion of the loan package is limited to 40 percent of the project cost, up to a total of $1.5 million, $2 million, or $4 million, depending on the exact nature of the project.

While there are no limits to the project size, typical projects range in size from $300,000 to $5 million.

What can loan proceeds finance?

Loan proceeds generally may be used for the following fixed-asset projects:

• Purchasing land and existing buildings, and making improvements such as grading, utilities, parking lots and landscaping
• Constructing, modernizing, renovating or converting existing facilities
• Purchasing machinery and equipment that has a useful life of 10 years or more
• Furniture and fixtures directly related to the project
• Soft costs such as appraisals, environmental studies, title insurance fees, architect fees, engineering fees, and related legal and accounting fees

What are the typical finance terms?

With the 504 loan, the business gets an attractive 20-year fixed rate for real estate loans and a 10-year fixed rate for equipment loans. The actual interest rate is based on the 10-year and 5-year treasuries respectively.

What are the eligibility requirements for a business?

An eligible business must be a for-profit corporation, partnership or proprietorship with a net worth (including any affiliates) of $7 million or less. Average net profits after taxes cannot exceed $2.5 million per year for the previous two years.

Are there any bottom-line benefits for bank lenders?

There are a number of incentives for lenders to use SomerCor’s 504 Program.

1. Reduce risk by financing a smaller portion of the project while.
2. Maintaining a first-lien position on 100 percent of the assets being financed.
3. Retain commercial-account relationships while participating in the long-term financing.
4. Comply with the Community Reinvestment Act and extend legal lending limits.
5. Generate new business for years to come.
6. Broaden the community’s tax base.
7. Stimulate the local economy through job creation and retention.