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.
The third-party lender must be in place when the development company sends the request to SBA, shown by a letter of intent, term sheet or commitment letter that states the terms and why the lender will not finance the whole project. Its loan must be at least as large as the net debenture, and at least 50 percent of project cost when the borrower is a new business or the property is special purpose. Its term must be at least 7 years against a 10-year debenture, and 10 years against a 20- or 25-year one.
Its loan cannot carry a cross-default, deem-at-risk or other term that lets it demand payment before maturity unless the loan is in default. It usually holds the first lien and SBA the second. For a project costing $5,000,000 or more, its credit memo or underwriting analysis goes to SBA.
SBA charges a one-time participation fee of 0.50 percent of the lender’s loan when the lender holds the senior lien, and the lender, the development company or the borrower may pay it. On a $1,000,000 first lien the fee is $5,000. If the lender is regulated by a federal functional regulator and certifies yearly that it follows the customer identification and OFAC rules, the development company may rely on it for those checks.
How it shows up in the data here
In the 504 file, ThirdPartyLender_Name, city and state name the lender and ThirdPartyDollars is its loan. The file carries no lender ID for it, so this site ties each first lien to a lender by name and state, and a name on fewer than three projects in the window gets no lender record. A lender page counts these as 504 first liens.
Go further
- SBA 504 lenders by projects: The banks named as third-party lenders, with the method printed above the table.
- SBA 504 lenders
- 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 Preferred Lenders Program and Express: how they differ: Some SBA lenders decide a loan on their own authority and some send it to SBA first. The difference changes who reads your file and who carries the risk.
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.
- Debenture (SBA 504): 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.
- 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.
- Delegated authority (SBA lending): Authority SBA grants a lender to make its own eligibility and credit decision before SBA issues a loan number: PLP and SBA Express for 7(a), ALP and PCLP for 504.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.