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A Powerful Idea with Simple Rules
The idea behind the 504 program is powerful. Working through area banks, we help businesses get access to stable, long-term financing that creates jobs and improves the local economy.
HCDC Provides Business Loans in Participation with Area Banks
Horizon Certified Development Company (HCDC) is a non-profit development company created to promote economic development. HCDC is a lender, certified by the U.S. Small Business Administration to provide 504 SBA guaranteed loans to businesses expanding or locating in the State of Ohio, Northern Kentucky, or Southeast Indiana.
Competitive Rates That Really Are Competitive
- Interest rates for the 40% HCDC portion of the loan will always be competitive with, and usually slightly below, current market rates.
- The rate for the 504 portion will be fixed for the term of the loan.
- Lenders like the 504 Program because it allows them to have a first mortgage with only 50% exposure.
How the 504 Program Works
HCDC provides subordinated, fixed interest rate, long-term loans for up to 40% of project costs or $1,500,000 (up to $4 million in special cases). Terms are 10 and 20 years, depending on the economic life of the asset being financed.
Example - $600,000 Project
| Amount |
Percent |
Source |
Security |
| $300,000 |
50% |
Bank, S&L |
1st Mortgage/Lien |
| $240,000 |
40% |
HCDC |
2nd Mortgage/Lien |
| $60,000 |
10% |
Owner Equity |
|
| $600,000 |
100% |
Total |
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Who Is Eligible for the 504 Loan Program?
- For-profit corporations, partnerships and proprietorships.
- Businesses whose net worth does not exceed $7,000,000.
- Net after tax profits must average less than $2,500,000 during the previous two years.
Applicants Involved in the Following are Ineligible:
- Speculation
- Non-profit institutions
- Lending or investment
- Rental property held primarily for sale or investment
What Is Eligible for the 504 Loan Program?
- Financing for land acquisition
- Financing for building acquisition or construction
- Financing for renovation or expansion
- Financing for machinery and equipment with a useful life of 10 years or more
- "Soft" costs for appraisals, general surveying, architectural work and installation.
Conditions for the 504 Loan Program:
- Refinancing of an existing obligation is generally ineligible.
- Inventory and working capital financing is ineligible.
- For new construction, the company must occupy 60% of the building initially; occupy an additional 20% of the facility within 10 years and may lease long term no more than the remaining 20%.
- Company owners may own the building and lease to the company.
- One job must be created or retained for each $50,000 in 504 funds loaned or other economic development goals must be met (i.e., loans to minorities, project located in rural area).
- All owners of 20% or more of the company stock will be required to personally guarantee the loan.
- A 504 loan may be prepaid. No partial prepayment, however, is permitted. A declining penalty is assessed during the first half of the loan term.
- Start up businesses and/or single purpose facilities require a higher owner equity injection.
To Proceed, We Need to Review the Same Information as the Lender
- Purchase agreement for real estate, which should be contingent on obtaining the HCDC loan.
- Written cost estimates on new construction, renovation, machinery or equipment.
- 3 years historical plus interim corporate financial statements.
- Personal financial statements of all officers and stockholders with more than 20% ownership.
- Description of project and proposed financing structure.
- Product description and product literature, including the company's competition, method of distribution, the product's strengths and weaknesses, marketing strategies, future plans and company management.
Even the 504 Process Is Simple
- HCDC will handle all the application paperwork, processing and review required by the SBA. A $250.00 non-refundable application fee is required at the time of submission to HCDC.
- Fees for application, processing, funding and underwriting costs will be less than 3%, added to the financed amount.
- A deposit of approximately $1,750 - $7,500 for out-of-pocket costs is required at the time of HCDC loan approval. This is the only direct cost to a business.
- Total normal processing time is about 90 days, depending on timing and calendar.
There Are Plenty of 504 Funds Available
In 2005, more than 9,000 SBA 504 loans in excess of $5 billion were approved nationwide.
Benefits of the 504 Loan Program - Click Here
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