CDC / SBA 504 Program Information
CDC / SBA 504 Program Information

The Purchase Area Development District is a Certified Development Company (CDC). A CDC is a nonprofit corporation which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development.




We are the only CDC that is located in the 8-county region of Western Kentucky and therefore the premier contact for local banks that want to participate in the program. By statue and in contrast to our other loan programs, we are able to offer the SBA 504 Program throughout the whole State of Kentucky.




The SBA 504 Loan Program supplies permanent long-term financing for the purchase of fixed assets such as commercial real estate and machinery and equipment of a capital nature, which are defined as assets that have a minimum useful life of ten years. Proceeds of 504 loans cannot be used for working capital.


There are three parts to a typical SBA 504 Loan, as follows:


  • Conventional bank first mortgage loan of approximately 50% of the total fixed asset costs;
  • SBA 504 second mortgage loan of approximately 40% of the total fixed asset costs; and,
  • Borrower's 10% contribution.




If the fixed asset being purchased is special use real estate, a 15% contribution is required by the borrower, and if the property is special use and involves a start-up operation (less than 2 years old), a 20% contribution is required.


Examples of special use properties include: Motels, hotels, schools, swimming pools, bowling alleys, auto service centers, theaters, sports arenas, dormitories, cold storage plants, tennis clubs, golf courses, marinas, gasoline service/convenience stores, automatic car washes, hospitals, museums, clubhouses, hospitals, surgery centers, urgent care centers, nursing homes, funeral homes, wineries, dairy facilities, and most recreational properties.


PADD approves its portion of the fixed asset financing request and works with the first mortgage lender to approve its senior permanent loan as well as the interim construction loan, if necessary.







SBA 504 Loan Unlocked

Disclosure Statement

Apply for a SBA 504 Loan

Application Package

Details of a SBA 504 Loan

Loan Purpose:

The SBA 504 Loan can permanently finance the purchase of real estate, construction or renovation of buildings, and purchase machinery, equipment, furniture, fixtures and project related soft costs. Refinancing of existing debt (limited to 50% of expansion project) may be included in the 504's total project cost.




Loan Amounts:

SBA 504 portion of the total fixed asset project costs cannot exceed:


  • $5,000,000 - subject to Job Creation Goals ($65,000 per Job; Portfolio Average)
  • $5,000,000 - subject to Public Policy Goals
  • $5,500,000 - small manufacturers
  • $5,500,000 - energy consumption reduction or renewable energy generation




Interest Rates:

SBA 504 interest rates are fixed for either 10 or 20 years.


Please click here to see the current and historic interest rates for the SBA 504 Program.





The SBA 504 loan has a term of 20 years for commercial real estate and a term of 10 years for machinery and equipment, both fully amortizing.




Loan Fees:


  • SBA Guaranty Fee - 0.500% of the 504 loan amount
  • SBA Funding Fee - 0.250% of the 504 loan amount
  • PADD Processing Fee - 1.500% of the 504 loan amount
  • Underwriter Fee - 0.400% or 0.375% of the 504 loan amount (20 or 10 year loans)
  • An ongoing Servicing Fee - 1.000% of the principal balance of the SBA 504 Note calculated at five year intervals beginning with the first payment. This fee is included with the monthly SBA 504 payment.
  • An ongoing CSA Fee of 0.100% per year is charged and is included with the monthly SBA 504 payment.
  • An ongoing borrower fee of 0.9375% per year will be charged and included with the monthly SBA 504 payment


Please use our Loan & Fee Calculator to get an estimate for your proposed project.




Prepayment Penalty:

Prepayment penalties will apply. The SBA 504 twenty (20) year fixed rate loan has a 10 year prepayment penalty and the 504 ten (10) year fixed rate loan has a 5 year prepayment penalty. Both are required by SBA and are not negotiable. The 504 debenture interest rate sets the percentage of the prepayment penalty and is reduced by 10% each year for the first 10 years on a 20 year loan and reduced by 20% each year for the first 5 years on a 10 year loan.





All principals who own 20% or more of the business are required to provide a full guarantee. Principals and key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis. When necessary to secure a collateral position, SBA will require the guarantee of a non-owner spouse to the extent of the spouse's interest in the collateral. The guarantee of affiliated companies may be required based on the percentage of ownership of the affiliate and the borrower's relationship with the affiliate.




Industries :

Loans can generally be made to all for-profit small businesses except those that do not meet SBA 504 eligibility requirements. These are primarily small businesses engaged in lending, loan packaging, investments, pawn shops, passive real estate investments, life insurance companies, small businesses located in a foreign country or owned by illegal aliens, pyramid plan sales, gambling, businesses which restrict patronage or promote a religion, cooperatives, non-profits, or individuals of poor character or on probation or parole.





A second lien position on the 504 project assets will be considered adequate when the applicant meets all of the following criteria:


  • Strong, consistent cash flow that is sufficient to cover the debt;

  • Demonstrated, proven management;

  • The applicant business has been in operation for more than 2 years; and

  • The proposed project is a logical extension of the applicant's current operations.

  • If one or more of the above factors is not met, additional collateral and/or increased equity contribution may be required. Because leasehold improvements provide minimal collateral value, PADD must always consider requiring additional collateral in this situation.



Page last updated on Fri, 17 Jan 2014 16:24:00 GMT.