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SBA 504 Loan Program

Category: Local Incentives, Grants & Loans

AGENCY: Enchantment Land Certified Development Company (ELCDC)
DESCRIPTION: The SBA 504 Program provides “economic development financing specifically designed to stimulate private sector investment in long-term fixed assets to increase productivity, create new jobs, and increase the local tax base”.
• Typical candidates for 504 Loans are businesses that are healthy, for-profit and have a track record of growth.
• Company must be a small business, with a net worth of less than $7.5 million and an average annual net profit after taxes of less than $2.5 million.
• New jobs must be created (or in some instances, job retention will suffice) as a result of the new fixed assets being financed. The rule-of-thumb is that a project must create one new job for every $65,000 of debenture.
• However, projects with a high community impact and low direct job impact may be considered when achieving a Community Development or Public Policy goal.
• Manufacturing firms in NAICS 30, 31 and 32 may be eligible for up to $4 million in debenture financing.
• A start-up business is eligible if, the small business concern can demonstrate:
• That it has qualified management with related industry experience;?
• A strong business plan backed by thorough research and well-based financial projections; and
• Access to an adequate amount of working capital, and a 20% (orgreater) overall equity contribution.
• Eligible use of 504 proceeds includes
• Land/buildings-purchase existing building, new construction, remodel/renovations;
• Machinery and equipment-minimum use full life of ten years;
• 10% contingency for cost overruns; and
• Professional fees-appraisal, architect, engineering, environmental report.
• The SBA 504 Program is a cooperative effort between the ELCDC/SBA, private sector lenders, i.e., banks and some non-bank lenders), and New Mexico small business.
• Small business: Applicant contributes a minimum of 10% cash toward the total 504-Loan eligible costs for a project. Single purpose type facilities require an additional 5%, and new/start-up businesses another 5% down; and?
• ELCDC: The SBA (viaELCDC) provides up to 40% or $1.5 million ($2 million in certain circumstances), whichever is less.
• 504 Loan is at a fixed interest rate for 20 years; 10 years for equipment.
• Private sector lender: provides the balance of the money (50%). The bank loan is at “reasonable” market rates and terms and at least 10-years when the 504 Loan is 20-years.
• SBA 504 Loans carry a fixed rate of interest - determined at the time the debentures are sold.
• 10-year terms are allowed for equipment purchases and 20-year terms for real estate.
• Private lender’s loan must carry a minimum term of 7 years for projects involving machinery and equipment, and 10 years for projects involving real estate. The private lender’s loan may be on a fixed or variable interest rate.

• Repayment of Interim Financing:
• Bank points & construction interest;
• 504 project cannot include tenant space improvements; and
• No debt refinancing in 504 Loan portion but, might be eligible to be structured and included in bank’s first mortgage.
• Collateral
• SBA 504 Loans are typically secured by alien on fixed assets acquired with loan proceeds to reasonably assure loan repayment;
• ELCDC/SBA’s lien is subordinate to the private lender’s position; and
• SBA requires the personal guaranties of the principals (with 20% or more ownership and/or a key management position).
• Application package should initially contain:
• Description of the project;
• Estimate of total project costs, i.e. purchase agreement for real estate and/or equipment and construction contractor bid(s);
• Three years tax returns (and a current interim) financial statement on the small business concern; and
• Personal financial statements of all officers/stockholders with 20% or more ownership in the business.
• Visit the ELCDC page at or call ELCDC at (505) 843-9232.

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Greater Gallup Economic Development Corporation | 102 W. Hill Avenue, PO Box 1795 | Gallup, NM  87301
Phone (505) 722-2980 | Fax (505) 722-2987