Frequently Asked Questions
Lakeshore 504 is certified by the U.S. Small Business Administration (SBA) to originate 504 loans for small to medium-size businesses within the State of Michigan
Q. HOW DOES LAKESHORE 504 WORK?
A. The 504 program allows small and medium-size businesses to obtain long-term, fixed-rate financing at low rates for up to 20 years. The SBA-guaranteed debentures are pooled monthly and sold to private investors.
Projects are financed per the following structure:
- A private lending institution covers 50 percent of the project cost.
- Lakeshore 504 finances 40 percent through SBA.
- The small business must invest at least 10 percent.
Q. WHAT ARE THE ADVANTAGES?
A. The 504 program is designed to create jobs and expand the tax base at the local level by stimulating small business investment. Lakeshore 504 financing offers you these advantages:
- Longer terms
- Low down payment
- Attractive interest rates
- Lower lender risk
Q. WHAT IS THE INTEREST RATE?
A. The bank sets the interest rate on the first mortgage. The SBA rate is fixed at the time of debenture sale for the life of the loan. It is typically below market rate and is tied to U.S. Treasury Bills.
Q. WHAT CAN IT BE USED FOR?
A. 504 loans are available for fixed-asset purchases only and cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing. Fixed assets include:
- Land and buildings
- New construction or renovation
- Machinery and equipment
- Leasehold improvements
Average life of the assets must equal at least 10 years.
Additional costs which may be financed as part of the SBA 504 project include professional fees - survey, engineering, legal, architect, accounting - as well as interest, fees and points associated with the interim financing.
Q. HOW MUCH CAN I BORROW?
A. Each eligible borrower may borrow up to $5 million through the 504. The 504 portion of the project, however, may not exceed 40 percent of the total project cost.
- The minimum SBA 504 loan is $50,000
- Small manufactures can borrow up to $5.5 million
- If borrower has at least a 10% reduction in energy consumption, generates renewable energy or renewable fuels such as biodiesel or ethanol production they can borrower up to $5.5 million
Q. WHAT TYPES OF FEES ARE INVOLVED?
A. Fees total approximately 2.65% of the SBA 504 loan plus $2,500 of closing costs and can be financed as part of the loan. These costs are as follows:
One Time Fees
- PROCESSING FEE - 1 1/2% of the debenture amount
- * FUNDING FEE - 1/4% of the debenture amount
- UNDERWRITING FEE - 1/2 of 1% of total debenture (debenture + *items)
- CLOSING COSTS - $2,500 plus any additional costs not typically included with loan closing
Third Party Lender Fee - 1/2 of 1% of bank end loan
A $2,500 refundable application fee is required prior to initiating the application process. This fee is refunded in its entirety upon loan closing and payment of loan closing costs. Should the application be cancelled prior to loan closing, all necessary costs incurred by the CDC will be deducted from the deposit prior to its disbursement.
Q. WHO IS ELIGIBLE?
A. For-profit businesses with a net worth not in excess of $15 million or a net profit after taxes not exceeding $5 million.
Ineligible businesses would include passive income and real estate companies, financial institutions, and non-profit businesses.
Q. HOW LONG BEFORE MY LOAN IS APPROVED?
A. Once the project has been approved at the local loan committee level, Lakeshore 504's loan officer completes the application. This process takes approximately one week. After the application is received, the SBA will give Lakeshore 504 an answer in less than 72 hours.