FAQ

The program is a way for borrowers to access permanent financing for the purchase of real estate their business will occupy. It can also be used for the business fixed equipment if it has a useful life of at least 10 years.

Specifically, the program can be used to:

• Purchase land & existing building
• Purchase land and build a new building
• Renovate or expand the business’ existing building
• Purchase machinery & equipment with at least a 10 year useful life
• Make an asset based company acquisition
• Refinance existing mortgage
• Refinance existing mortgage and take cash out for operations
• Refinance existing mortgage and expand building

The lender typically provides 50% of the project financing, and Premier Capital 40%, leaving the borrower with a contribution of 10%.

Please view the SBA 504 Process page and email Gary Huff

With complete information and documents, we can pull together the loan package relatively quickly. The timing often depends on obtaining the appraisal and environmental reports as early as possible. All things being equal, Premier Capital routinely meets the demands of a 45-day turn around. We encourage you to bring us into the process early in order to discuss the project timing.

No. Premier Capital is a private not-for-profit company that is authorized by the SBA to deliver and administer the 504 program for projects in the state of Indiana and Kentucky. Premier Capital was established in 1976 and is one of the top 504 lenders in the nation. There are approximately 250 such companies across the U.S. known as Certified Development Companies, or CDCs.

There is a nine month look back provision in the 504 program. Any expenses that have occured in the past nine months can be included in the project.

Yes, however, there are no maximums on the size of the project, only on the portion that can be funded by the 504 program. The limitations are:

$5.0 million on most projects
$5.5 million, per project,  if the company is a manufacturing with NAICS codes of 31, 32, or 33 or if the company meets the SBA energy policy criteria.

If you have an SBA 504 Loan, Premier Capital, can provide an estimated payoff amount to you for planning purposes. Once you decide to pay off your loan, please keep this information in mind:

• Premier Capital must have a 45 day written notice (which we can provide) that the loan is going to prepay.
• 504 loans can only be pre-paid on the 3rd Thursday of every month.
• The payoff amount is the sum of the following: Outstanding note balance at the semi-annual date; monthly payments (minus fees) due up to an including the semi-annual month; and prepayment premium (if any).
• A prepayment penalty may apply. The prepayment penalty is a declining amount over the first half of the term of the debenture.
• Please contact our office immediately for more information and to establish a payoff date.

Pursuant to the terms of your Mortgage, you are required to insure your property for the full insurable value on a replacement cost basis. Evidence of Property Insurance must be provided and kept current for the life of loan by the owner of the property. Premier Capital Corporation and/or the U. S. Small Business Administration is to be listed as a Lender Loss Payable, worded as follows:

Premier Capital Corporation and/or
U. S. Small Business Administration
151 N. Delaware St. # 175
Indianapolis, Indiana 46204

Please have your agent forward a copy of your policy to our office. Please note we require Building Coverage carried by the property owner along with liability and workers compensation coverage carried by the operating company.

Businesses deemed to be located in a flood zone must purchase Flood Insurance on the property. Flood Insurance must be provided for and kept current for the life of the loan by the owner of the property. If there has been a change in the flood zone where you are located and you feel insurance is no longer needed, please call our office at (317) 974-0504 and ask that the requirement be removed.

The benefits of the 504 program to a business include a low down payment, longer loan terms, and larger loan amounts than may be available through a conventional loan. In most cases, the borrower’s down payment will be 10% of the project costs. In addition, interest rates on the 504 loan are typically below market and fixed for the duration of the loan term (10 years for equipment and 20 or 25 years for real estate).

The 504 program can mitigate risk by putting the lender in a first mortgage position at 50% loan-to-value. A lender can also use the 504 program to offer potential borrowers an option to conventional financing, which typically requires between 20% – 25%. Use our Comparison Calculator to compare the 504 to a conventional loan.

Yes, in two possible ways. It is possible to prepare “companion” 504 loans, one 20-year loan for the real estate, and another 10-year loan for the equipment. Or, if the weighted useful life of the equipment does not “drag” the overall life of the project below 20 years, we can prepare a single application that includes both real estate and equipment.

Yes. SBA allows for individuals, trusts, LLCs, corporations or partnerships to hold title to the project property so long as it is leased to the operating company and meet all eligibility requirements.

Yes, however, in addition to subordinating to the bank and SBA, the seller will be required to sign a Standby Agreement disallowing principal payments and interest on the loan. If the applicant has made several years of prompt payments on the SBA loan, and the cash flow and financial condition both support it, a servicing request to the SBA to begin allowing principal payments to the seller might be approved.

There is a nine month look back provision in the 504 program. Any expenses that have occurred in the past nine months can be included in the project.

Yes. The Borrower’s injection may be existing equity in land (including buildings, structures and other site improvements that will be part of the Project Property) previously acquired by the borrower.

No, the project value will be based on the lower of cost or appraised value.

Land may be used as the equity injection in the project. The appraised value may be used if the land was acquired more than two years prior to the application date and the appraisal is accompanied by a title report covering the sale history for the past five years. Otherwise, the lower of cost or market value must be used. The borrower’s contribution may include the buildings and site improvements on the contributed land as long as they are used in the project.

Premier Capital Corporation’s attorney certifies the transaction, as required by the SBA. His fee is $1,500.

Yes, however, the amount of the prepayment penalty decreases each year and disappears after year five for a 504 loan with a 10-year maturity and after year 10 for a 504 loan with a 20-year maturity. Partial pre-payments are not allowed.

Yes, as long as the SBA has an opportunity to review both corporate and personal financial information on the proposed borrower(s) in advance of the sale. One note of caution: the release of the original borrower’s personal guaranty is NOT automatic with a loan assumption.

No.

The borrower must meet both the bank and Premier Capital’s credit criteria, generally cash flow coverage of 1:1 and leverage no greater than 10:1

Land, building, renovation cost, if applicable, professional and soft cost related to the project.

No, however, the SBA 7(a) loan can be used for these items and the 504 program for the real estate.

Yes, if the franchise is approved by the SBA.

No. There are eligibility requirements for the 504 program. Below are the most common requirements:

1. The business must be a for-profit company located in Indiana and Kentucky. Borrowers, those with at least 20% ownership, must be U.S. Citizens or permanent resident aliens.
2. If the business is an existing business, the tangible net worth cannot exceed $15 million and the average net income over the past two years cannot exceed $5 million
3. Below are samples of projects that are ineligible for the 504 program:
   • Non-profit companies
   • Real estate development or other speculative businesses
   • Finance companies e.g., banks, check cashing or finance companies
   • Pyramid sales distributions
   • Businesses that limit membership for reasons other than capacity
   • Businesses deriving more than 1/3 of gross annual revenues from legal gambling
   • Religious based businesses
   • Businesses or owners that have defaulted on a federal loan e.g., student loan
   • Business of prurient sexual nature

Generally yes, as long as the hotel has been historically profitable, has a flag, in a good location and the borrowers have experience operating a hotel and will be the owner/operators.

No. Restrictions on the brand of service station to be operated on the premises are not acceptable to the SBA either as part of the purchase and sale agreement or if already contained in covenants running with the land.

Only if the property is unimproved land.

Sometimes. When the Project Property is land and building, and it was acquired less than nine months before the application is received by SBA, the financing used to acquire the land and building could be considered “interim financing” and be eligible to be paid-off with 504 loan proceeds.