What can the money be used for?

In general, only to acquire or improve fixed assets with a useful economic life of ten or more years.  Most projects include the acquisition and/or improvement of one or more of the following:

• Land and/or an existing building
• Land and construction of a new building (Buildings on leased land are also eligible)
• Commercial condominiums
• Certain machinery and equipment
• Certain soft costs

Is there a minimum or maximum Total Project Cost?

Does CADDA provide all the financing?

No.  In every project there will be two loans, one from CADDA and the other from the participation lender.  Typically, CADDA finances 40% and the participating lender finances 50% (the remaining 10% coming from the borrower). 

How much can I borrow?

The total of all loans from CADDA to a single borrower may not exceed $2,000,000 at any one time ($4,000,000 for a manufacturer).  CADDA's share of any one project cannot exceed 40% of the actual Total Project Cost.  In other words, for projects with a Total Project Cost from $250,000 to about $4,000,000 (or $10,000,000 for manufacturing), CADDA will finance 40% and the participating lender will finance 50%.  For projects larger than $4,000,000, CADDA's share is fixed at $2,000,000 (or $4,000,000 for manufacturing), but the participating lender will 'pick up the difference' so that 90% financing is provided.

Is it always 90% financing?

No.  There are two conditions which require the borrower to increase the equity contribution by 5% (which reduces the CADDA loan by 5%):

• The real estate is deemed to be 'single purpose', e.g., gas station, ice skating rink, car wash
• The business is deemed to be a startup (a business acquisition involving a change of management is also considered a startup)

How does the pricing compare with conventional bank financing?

There is no comparison.  To the best of our knowledge, conventional lenders do not offer a twenty year fixed rate loan.  Most lenders will fix their rate for a maximum of 5-7 years.  Therefore if you are interested in a 20 year fixed rate then a 504 loan is a great option.The interest rate that the Primary Lender will offer is very competitive given that the lender has a first mortgage with a 50% loan to cost.  Therefore, since their risk is less their pricing can be very competitive.

What is the cost?

There are no out of pocket expenses to obtain a 504 loan.  The fees are all rolled into the loan and are included in the effective rate which is quoted to you.

Are there prepayment penalties?

Yes.  There is a declining prepayment penalty during the first 10 years.  Years 11-20 there are no prepayment penalties.  However, during the first 10 years, CADDA will allow the loan to be assumed if you sell the building.  This is especially helpful if you closed your loan in a low rate environment and sold it when the interest rate was higher. CADDA also allows you to transfer your mortgage from one building to another if you sell one building and move to a larger building.  You can transfer the mortgage with only a small documentation fee, and still have the benefit of your long term fixed rate without paying a prepayment penalty.

Are all types of businesses eligible?

Almost all types are eligible.  The only types of businesses typically excluded from the program are not-for-profits, self-storage facilities, and businesses whose primary source of revenue is from gambling, lending, or the production or distribution of material considered to be sexually prurient.

Are Section 504 loans for small business only?

A 'small' business is probably much larger than you thought.  So long as the Net Worth of the business is less than $7,000,000 and the Net Profit After Tax for the last two years added together is less than $5,000,000, the business is 'small enough' for a Section 504 loan. Even if a business exceeds these measures, it still might be 'small enough'.  For example, a manufacturer that employees 500 or fewer persons is always considered a 'small' business.

Are personal guarantees required?

Yes.  Any person who owns or controls 20% or more of the ownership of the business or 20% or more of the real estate (assuming the real estate is held in a separate legal entity) must personally guarantee the Section 504 loan.  In the case of a married couple where both spouses have an ownership interest, the couple is treated as one person, e.g., if both spouses own 10% each, both must guarantee.  In certain circumstances, persons with less than a 20% ownership may also be required to personally guarantee.

I have an excellent relationship with my bank.  Must I change banks?

Absolutely not.  We know the importance of building and maintaining a strong banking relationship.  You decide who the participating lender is.  (Just about every lender in the area has participated with CADDA.)

How long is the approval process?

CADDA prefers working in conjunction with the first mortgage lender to provide an answer at the same time.  Typically the approval process is three weeks from the time that all of the information has been provided to CADDA.

Do I need to get two appraisals and two environmental studies?

No.  We work with the banks to let them know our standards prior to the time that the appraisals and environmental studies are ordered.  This way the bank and CADDA can utilize the same report and the borrower only has to pay once for the reports.