May 2014 Newsletter: 504 Rates

The May 504 interest rate dropped another 11 basis points to 5.08%. This marks the 4th straight monthly decline in 504 rates!  It’s a great time to encourage your business clients who have been waiting to buy, build or renovate, to start the process while they can lock into a low 20 year fixed rate.  If you’re working with sellers, make them aware of the 504 Program so they can provide this information to prospective purchasers.

Practice Tips

Seller Financing

SBA is increasing its scrutiny of the borrower’s source of its equity injection. One of the sources of equity seen more frequently in recent years is Seller Financing.  A couple of quick notes on Seller Financing:

a. A copy of the Seller Note must be provided to the CDC/SBA.
b. The borrower may not repay the Seller Note faster than the 504 loan unless prior approval is granted by SBA.
c. The Seller Note may be put on full or partial standby.
d. If the Seller Note is to be secured by Project Property, the Seller lien must be subordinate to the SBA lien.

Set the expectations clearly and early when Seller financing is involved to avoid problems down the road.

Proof of Issuance of Certificate of Occupancy/Architects Certificate of Completion for Construction/Renovation Projects

SBA is in the process of approving new forms which will have to be completed prior to the SBA closing, certifying that the Borrower has obtained a Certificate of Occupancy, if required by the Loan Authorization.  Borrowers frequently overlook this document causing a delay of the SBA closing until it’s obtained.

Make your Borrowers aware that they need to secure this document following the completion of their construction/renovation project.  Delays in securing the CO will result in delays paying off your interim loan.