In December 2012, the 20 year “all-in” fixed rate for 504 loans fell below 4.0% for the first time in the history of the program. Also, the 10 year rate, which adjusts every two months, is at a record low, hovering just above 3.05%. It is a great time to use the 504 program. In [...]
General Eligibility Requirements
- Business size: Net worth less than $15,000,000; net profit not more than $10,000,000 over the past two years
- Employment: Meets one of a variety of goals
- User of asset: Operating Company must be primary user
- Industry: Very few exclusions
Areas we serve
- Massachusetts: All counties
- New Hampshire: Belknap, Cheshire, Hillsborough, Merrimack, Rockingham, and Strafford counties
- Rhode Island: Bristol, Kent, Newport, and Providence counties
- Vermont: Addison, Bennington, Chittenden, Rutland, Windham, and Windsor counties
- Connecticut: Hartford, Litchfield, Tolland, and Windham counties
Size of business
The tangible net worth of the borrowing company, including affiliates and other companies under common control, cannot exceed $15,000,000. The average NPAT (net profit-after-tax) for the most recent two years (excluding loss carry-forwards) cannot exceed $5,000,000 per year. Stated another way, the total NPAT for the past two years cannot exceed $10,000,000. If this maximum is exceeded, alternative size standards may be used in certain instances.
Each project must meet at least one of a broad range of economic development objectives. An economic development objective is met if the project meets a community development goal or a public policy goal (as defined by the Section 504 Loan Program) or creates or retains one job for each $65,000 ($100,000 for manufacturing) of debenture assistance.
User of asset
The asset being financed must be used by the operating company (or companies). Real estate must be owner-occupied as defined by the Section 504 Loan Program. There are two definitions of owner-occupancy, one for existing buildings and another for new construction:
- Existing buildings: The operating company (or companies) must not lease out more than 49% of the space
- Newly constructed buildings: The operating company (or companies) must initially occupy at least 60% of the available space and plan to commence expansion into the remaining space within three years such that it will occupy at least 80% of the facility by the end of the tenth year. In other words, up to 20% of the facility may be leased permanently to an unrelated third party.
Not-for-profit organizations, investment firms, financial institutions, most gambling facilities, and businesses engaged in the production, distribution, or presentation of products or services of a prurient sexual nature are not eligible for Section 504 financing.
The operating company may be organized as a corporation, partnership, proprietorship, limited liability company, or producers’ cooperative. A passive entity such as a realty trust, partnership, subchapter S corporation, etc. may be the borrower and lease the property to the operation company. There is no requirement that there be any common ownership between the operating company and the passive entity that owns the real estate. However, the loan must be guaranteed by the operating company as well as each holder or married couple with a 20% or more interest in either the operating company or the passive real estate entity.
Personal liquid net worth
Normally, owners of 20% or more of the operating business and/or passive real estate entity cannot have personal liquid net worth in excess of the total financing package. For example, if the total financing package were $1,500,000, each “20% or more” owner could not have more than $1,500,000 in cash and marketable securities. Real estate equity and retirement funds are not included in the calculation. For projects below $750,000, owners may have liquid assets above the project amount. Contact us for more details.