The 6 Steps of the 504 Loan Process
Step 1: The Initial Meeting
Small Businesses who think the 504 Loan sounds like it would meet their needs should contact Utah CDC at (801) 627-1333 to set up an initial meeting. The following items should be prepared for the initial meetingg:
- A description of the project
- An estimate of the total project costs, including estimates on new construction, renovation, machinery, or equipment
- A purchase agreement or an offer to purchase for any real estate involved in the project
- Product description and product literature. Be prepared to discuss its competition, the strengths and weaknesses of its product, its method of distribution, and the type of marketing it uses, future plans, and management.
- Financial statements of the company for the past three years, and an interim statement which is less than 90 days old.
- Personal financial statements of all individuals with 20% or more ownership in the company
- NOTICE: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all Certified Development Companies to obtain, verify, and record information that identifies each person who applies for a 504 Loan.
What this means to you: When you apply for a 504 Loan, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.
Step 2: Prepare Loan ApplicationWorking with the small business and a private-sector lender (a bank or credit union chosen by the small business borrower), Utah CDC prepares the application package for the Small Business Administration (SBA). We use the information you provide, along with our knowledge of SBA’s regulations and processes, to prepare the application package for the SBA. The more information we have up front, the easier it is to process your package quickly. Our goal is to handle the red tape…and let you handle your business!
How long will this take? Once the required information is provided to the CDC, the loan application packaging process takes only 2-3 days. After your package has been reviewed by our loan officer and processor, it is presented to our internal loan committee for review. If the package is approved in our loan committee, it’s ready to go to SBA for final approval!
Step 3: SBA Authorizes Your Project & FinancingThe completed loan application package is forwarded to the SBA review office in Sacramento, California ELECTRONICALLY! Utah CDC is an SBA Preferred Lender, making the approval process even better. Our SBA partners review the application package, and if approved, they will issue a formal loan Authorization. The loan Authorization provides us with all of the instructions we need in order to move your loan forward to the funding process.
How long will this take? Depending on the current workload at SBA, an approval normally takes 5-10 business days.
This means that with a complete package, and the help of Utah CDC, a small business could see an SBA 504 loan packaged and approved in as little as two weeks!
Step 4: Interim FinancingOnce the SBA has approved the loan, your bank or credit union will provide interim financing for the purchase of your land, building and equipment, including the costs of new construction if necessary, up to 90% of the total project costs. Working directly with the bank/credit union to handle the initial purchase and construction loan makes it very convenient for the small business. Utah CDC works closely with your bank or credit union to make sure all the pieces fall into place so we are ready to complete the financing package. Once you are in your new building, and/or your new equipment is installed…we are ready to move forward with your SBA 504 Loan Closing and Funding!
Step 5: SBA Loan ClosingOnce the purchase of assets has taken place, or new construction is complete, Utah CDC will meet with the small business to finalize the closing documentation necessary for funding the SBA portion of the loan. Again, we work closely with the small business and their bank or credit union to make the process as seamless and easy as possible. Utah CDC assembles the final package for CDC legal review, and then your loan is presented to the SBA for funding!
Step 6: SBA Funds the 504 LoanApproximately 45 days after finalizing SBA closing documents, the 504 loan funds are wired directly to the participating bank or credit union. Once the funds are in place, the small business has a first mortgage loan with their lender for approximately 50% of the project costs, and a second mortgage with the CDC/SBA for approximately 40% of the project costs.
Utah CDC is always available to answer questions and help you understand the process, even after the deal is done! Call on us any time!