Preparing for your SBA 504 Loan Closing

Leases. If the Borrower is different than the Operating Company, there must be a lease between the Borrower and the Operating Company for 100% of the Project Property. If there is a subtenant, the sublease must be between the Operating Company and the subtenant. When the borrower’s are a husband and wife, and the business is operated/owned by one spouse, a lease is not required.

Subordination Agreements. Every lease and sublease on the Project Property are to be made subordinate, or junior, to the SBA Deed of Trust. The Borrower and the Operating Company must sign the Subordination Agreement, which relates to their lease. The Operating Company and the subtenant must sign the Subordination Agreement, which relates to their lease. Each signature must be notarized. CDC can provide borrowers with copies of this agreement.

So long as the subtenant is not in default of their lease, their tenancy should not be disturbed or interrupted.

How long do we need to stay in the building?

The Operating Company must occupy the Project Property during the term of the loan (51% if existing building; more if new construction). The Operating Company must occupy the Project Property by the closing of the loan. In highly limited, pre-approved situations, occupancy may occur after closing with prior approval by the SBA.

When do we contribute our down payment?

The Borrowers contribution must be completed prior to closing. Proof of the contribution must be provided.

What Corporate Officers and Directors are required for an SBA 504 Loan?

Corporate Officers. Every corporation must have a President, Secretary and Treasurer. These positions may be filled by one person or by multiple people. Corporate officers must be elected on an annual basis. Proof of their election within the last 12 months is required. CDC Small Business Finance can assist with a sample resolution for corporate officers.

Corporate Directors. If a corporation has one shareholder, at least one director is required. If a corporation has two shareholders, at least two directors are required. If a corporation has three or more shareholders, at least three directors are required. Corporate directors must be elected on an annual basis. Proof of their election within the last 12 months is required.

W-9. An IRS Form W-9 must be completed and submitted with every package. Relevant tax reporting information will be reported by the Central Servicing Agent to the person or entity identified on this Form. The Borrower must select one person or entity and insert all applicable information.

What are the insurance requirements for this loan?

Hazard insurance on the Project Property must be obtained prior to closing and must be current. The amount should be full replacement cost and must obtain a mortgagee clause in favor of the SBA and the CDC. The policy must provide for 10 days notice prior to cancellation.

Do we need to submit new financials?

Financial Statements current to within 90 days of closing process are required from Operating Company.

If the loan involves construction, are there any additional documents we must provide?

In projects involving construction, the Borrower must provide a (1) Certificate of Occupancy or Final Inspection at approval, (2) a notice of completion of the work, and (3) proof of construction expenditures. Your CDC loan officer and loan package can provide assistance in this regard.

Why do I need to have a standby agreement?

Some debt must be made subordinate to the SBA deed of trust. Frequently, this is debt of the Operating Company to a shareholder. A document entitled a Standby Agreement will subordinate the debt.