Pub. 15 2018 Issue 3

18 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S Update of SBA 504 Loan Program By Lorena Chavez, Capital CDC A s Capital CDC rapidly approaches our fiscal year-end on September 30, I would like to share with you – our banking partners – some positive updates to the SBA 504 Loan Program from this past year. This biggest policy change is one which I believe is the most significant change under the 504 Loan Program in a very long time – the ability to finance Eligible Fixed Asset(s) for up to 25 years. This change went into effect for all SBA 504 Loans approved on or after April 2, 2018, with the first funding in July 2018. This change allows us to be competitive with both conven - tional and 7(a) products offered to potential borrowers. When this change first went into effect, one of the biggest unknowns was the pricing or better said: What interest rate will the borrower receive when the 25 years loan fund? Originally, we were told the rate could be .30 basis point above the 20-year rates. I’m happy to announce that the rates have actually been closer to the 20-year rates than originally expected. As I write this article, the September 2018 rates for the 25-year debentures are 5.290%, in comparison with the 20-year rates which are 5.250%. When the borrower chooses the 25-year term option, there are not any other changes that affect the bank or the bor - rower. The minimum term of the third-party lender note for the 25-year debenture remains the same as they are for the 20-year debentures, which is a minimum of 10 years. Remember, the amortization on the bank’s portion of the loan can be as long as the bank’s lending policy allows. Lastly, the prepayment penalty also remains the same as for the 20-year debenture, which is for the first 10 years of the SBA portion of the note. The second update I’d like to share is related the SBA 504 Refinance Loan Program. The definition of “qualified debt” that is eligible to be refinanced has been revised to allow loans that were refinanced within two years prior to the date of SBA ap - plication. If the effect of the most recent loan was to extend the maturity date without advancing any additional loan proceeds, except to cover closing costs, and the collateral for the most re - cent loan includes, at a minimum, the same eligible fixed asset(s) that served as collateral for the prior loan that was refinanced. We are also able to finance eligible business expenses, which are defined as operating expenses that were accrued but not paid prior to the date of application or that will become due within 18 months. Examples of these expenses include repairs, mainte - nance, minor improvements, salaries, rent, utilities and inven - tory; including any operating expense that can be deducted as an expense in the taxable year in which it was paid or incurred; business lines of credit & business credit card debt are also eligible. We cannot include capital expenditures such as expen - ditures for expansion and acquisition. Other recent changes that affect the 504 Loan Program are that a borrower may not lease space to a business that is engaged in any activity that is illegal under federal, state or local law. Namely, any businesses engaged directly or indirectly in the Marijuana Business or Hemp Related Business during the life of the loan. Please keep in mind as you are talking to your customer, it isn’t necessary that you know all of the eligibility requirements and policies of the SBA 504 Loan Program. The staff at Capital CDC is available to help you navigate through the entire process. At the onset, Capital CDC is available to determine eligibility quickly and prepare a “Sources and Uses of Funds” for your customer. This document provides the customer with the under - standing of the structure of their loan, the SBA fees, and what their projected debt service will be if they obtain SBA 504 Loan Financing. We also have the capability to provide them with a prepayment premium estimate if that is also a concern. n