The bond a certified development company issues to fund SBA's share of a 504 project. SBA guarantees it in full, and debentures are normally sold once a month.
The net debenture is the part that pays eligible project costs, up to 40 percent of project cost. The gross debenture adds the costs rolled into it. The SOP’s pricing model adds the net debenture, the 0.50 percent SBA fee, the 0.25 percent funding fee, the development company’s processing fee (up to 1.5 percent) and closing costs, then divides by 0.996 for a 20- or 25-year debenture (0.99625 for 10 years) and rounds up to the next even thousand. The underwriter’s fee, 0.4 percent of the gross, is built in by the division.
Example: a net debenture of $800,000 plus $4,000, $2,000, $12,000 and an assumed $2,500 is $820,500. Divided by 0.996 it is $823,795, which rounds up to a gross debenture of $824,000.
The gross debenture is capped at $5,000,000 per borrower and affiliates, $5,500,000 per project for small manufacturers and energy projects, with a $25,000 minimum. Debentures are normally sold on the Wednesday after the second Sunday of each month. Unused contingency above 2 percent of the debenture reduces it.
How it shows up in the data here
Not a separate field. On a 504 row in the SBA file, GrossApproval is the SBA and development company amount, not the project cost, and ThirdPartyDollars is the bank's first lien. The sale date and the final terms of each debenture are set after SBA authorizes the loan and are not in the loan record here.
Go further
- SBA 504 structure calculator: Net and gross debenture for a project cost you enter.
- SBA 504 structure calculator: Bank loan, debenture and down payment for a project, and the fees that sit around them.
- SBA 504 loan package checklist: A 504 project has three parties, two loans and a closing date set by a monthly bond sale. Build the package for all three.
- SBA 7(a) or 504: which fits your loan: Both are SBA loans, and they work differently. The choice usually turns on what you are buying and how much cash you can put in.
Related terms
- SBA 504 loan: A fixed-asset financing in which a bank lends 50 percent or more, a certified development company funds up to 40 percent through an SBA debenture, and the borrower puts in at least 10 percent.
- Certified development company (CDC): A lender certified by SBA to package, close and service 504 loans and to issue the debenture that funds up to 40 percent of a project.
- Third-party lender (SBA 504): The bank or other lender that makes the first-lien loan, usually about half the project cost, in an SBA 504 project. SBA does not guarantee its loan.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.