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.
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.
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.
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.
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,
Lenders / Banks
Developers / Builders
SBA 504 Loan Unlocked
Apply for a SBA 504 Loan
Details of a SBA 504 Loan
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.
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
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.
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
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.
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.