Common Problems & Solutions
Our SBA 504 loans are specifically designed to help finance small business growth and address many of the problems small business owners face with ordinary lending:
| Problem: | Small business owners struggle with large down payment commitments. |
| Solution: | Our 504 loans typically require only a 10% down payment commitment, far less than ordinary loans (usually about half as much). |
| Problem: | Long-term, quality financing is hard to find. Ordinary loans only finance commercial real estate for 15 or 20 years, making the proposed monthly payments more difficult to meet. |
| Solution: |
Our 504 loans can be obtained for up to 25-year terms.
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| Problem: | Many small businesses need more money than SBA micro-loans provide but are too small for ordinary bank loans. |
| Solution: | Our 504 loans are designed specifically for small businesses with a net worth below $7 million and average after tax profits for the past two years below $2.5 million. The total loan amounts can be from $200,000 to $10 million with a maximum loan amount of $4 million for the SBA debenture portion (2nd mortgage bond — usually 40% of the total project costs). |
| Problem: | Ordinary banks and economic developers don't understand small businesses and therefore don't want to help finance them. |
| Solution: | Our 504 loans are designed for small businesses and are available for almost any type of business that needs financing for real estate or equipment. Certified Development Companies (CDC's) are the SBA's representatives for issuance of 504 loan 2nd mortgages at below-market, long-term fixed interest rates. They are basically economic developers with money to lend to small business owners. As an entrepreneurial small business ourselves, we understand your issues and will do all we can to help finance your small business. |
| Problem: | Fees and expenses of ordinary loans make them out of reach. Many business owners barely have the 20% required equity contribution for a bank loan, in addition, they have to pay out-of-pocket for another 2% to 3% of the purchase price for all the closing costs. |
| Solution: | Closing costs and other up-front costs and expenses are financed with our loans. Multi-purpose commercial properties for small business owners that have owned and operated their companies for several years will be financed at 90% of the total project costs (90% loan-to-cost). Put another way: Only 10% down-payments of the total project costs can be expected for most of our 504 loans. This will usually be about half as much down payment as required by ordinary banks. |
| Problem: | Many banks will not finance certain industries that have caused them a portfolio loss in the past. |
| Solution: | The only companies generally not eligible for a 504 loan are: non-profits (except sheltered workshops); passive holders of real estate and/or personal property; lending institutions (mortgage brokers and correspondent lenders are eligible); life insurance companies (however, franchised agents are eligible); businesses located in a foreign country or owned by aliens; businesses selling products/services through a pyramid plan; illegal businesses; gambling concerns; businesses which restrict patronage; government owned entities (excluding Native American Tribes); businesses engaged in promoting religion; consumer and marketing cooperatives (producer cooperatives are eligible); businesses engaged in loan packaging; businesses owned by persons of poor character; businesses providing prurient sexual material; businesses that have previously defaulted on a Federal loan; businesses engaged in political or lobbying activities; and speculative businesses. If your business didn't make this exhaustive list, then it's probably okay. |
| Problem: | Ordinary loans can force borrowers to have an added expense of refinancing their loans in 5, 7, 10 or 15 years when a balloon payment is due. |
| Solution: | Our 504 loans have no balloons, calls or other restrictive covenants. The rate on the first mortgage simply adjusts with no addition cost to the borrower (most after either 5 or 10 years, depending on the terms). Our second mortgages are fixed for the entire 20 year term. |
| Problem: | Some business owners need to finance equipment for their company as well as real estate. Most ordinary lenders only finance them separately, offering a real estate loan with a separate, shorter-term equipment loan/lease that strains the owner's cash flow. |
| Solution: | Our 504 loans can roll the cost of equipment into the total project cost that is to be financed (generally not more that 20% of the total project costs, however). Therefore, the equipment is financed with the same, more favorable terms as that of the real estate and your cash flow should be positively affected. |
| Problem: | Some ordinary banks have lending limits imposed on their clients, causing those that have lines of credit and other accounts with their bank to "max-out" and not be eligible for a real estate loan. When they approach a new lender, they are frequently required to switch their other business accounts to the new lender before obtaining a loan, thus ending a long-term, comfortable relationship with their current bank. |
| Solution: |
MCC specializes in 504 loans for commercial real estate. We have no depository accounts, car loans, home loans, lines of credit, etc., so you can keep your relationship with your current lender and finance your real estate with us. We also have no lending limits to our borrowers. |
