SBA 504 in 2024! This has a nice ring to it. At Big Sky Finance, we believe there are great opportunities to make 2024 the year of the 504 for our small business borrowers. 2023 was a tumultuous year for interest rates and commercial real estate financing in general. The SBA 504 Loan program is a financing tool we want every lender to know about, one that provides benefits to small businesses, commercial lenders and the Montana communities we live in.

Who We Are

First off, let us share a little about who Big Sky Finance is and what our role is with the SBA 504 Loan program. Big Sky Finance is a Certified Development Company (CDC) authorized by the SBA to provide SBA 504 loans across the state of Montana. The SBA requires all 504 loans to be administered by a Certified Development Company. We are a local, Montana-based company headquartered in Billings. 2024 marks our 20th year providing 504 loans to Montana small businesses, working together with our lending partners across the state. We have a talented team with years of experience in commercial and SBA lending, committed to the growth and success of the Montana economy in which we all live!

What Can the SBA 504 Loan Be Used For, and How Is It Structured?

The SBA 504 Loan program is for owner-occupied, fixed asset financing: acquisition of land with new construction, purchase of an existing building, purchase with renovations, equipment purchases or refinance of existing commercial debt. Big Sky Finance partners with the borrower’s commercial lender, with the typical financing structure as follows: bank financing 50% of total project costs in a 1st lien position, SBA 504 loan through Big Sky Finance financing 40% of the total project costs in a 2nd lien position and the borrower coming in with as little as 10%. This structure may change under certain circumstances, with borrower’s equity increasing to 15% or 20% if financing a new business, special purpose property or combination of both.

The SBA 504 Loan program is not only for new project financing. Debt refinance is another tool available with the SBA 504 loan program. Options include the straight refinance of existing eligible debt, or debt refinance with expansion for those looking to expand their current operation. With SBA rates below market, now may be the time for lenders to review their portfolios for opportunities to refinance existing, eligible debt.

Rates

Let’s talk about rates. The interest rates on SBA 504 loans are fixed for the term of the loan. The effective rates on SBA 504 loans are based on the 10-year Treasury yield for 20- and 25-year notes and the 5-year yield for 10-year notes. Due to the fact SBA effective rates are based on these longer-term yields, SBA 504 loan rates have historically remained lower than most commercial loan rates; this was very evident in 2023, particularly as the Fed raised short-term rates. Locking in a fixed rate for up to 40% of a borrower’s long-term financing provides the certainty of a constant repayment stream through the life of the loan. SBA offers loan terms of 10, 20 or 25 years. Equipment-only notes typically utilize the 10-year note, while any of the three terms can be used for real estate.

Benefits

What does all this mean to lenders and borrowers? Partnering with Big Sky Finance on an SBA 504 loan for your borrower has many benefits:

Borrower Benefits

• • Minimal equity requirement — as little as 10% down.
  • Competitive, fixed rate for the term of the note.
  • No additional collateral required other than project collateral.

Lender Benefits

• • 1st lien position at typically 50% LTV.
  • Limits bank’s exposure.
  • Utilize own documents and set own rates and terms.
  • No SBA paperwork — all handled by CDC.
  • CRA credit.

Community Benefits

• • Projects add to the tax base.
  • New job creation.
  • Big Sky Finance loan revenues reinvested into the Montana economy for other economic development.

Let us work together to make 2024 the year of the 504, helping Montana small businesses grow. Utilize the SBA 504 Loan program as part of your lending toolkit. Providing your borrower with a fixed rate for up to 40% of their project financing shows you are looking out for their best interest long term! Let our 504 experts at Big Sky Finance be your resource to work out the project eligibility and structure. It is our job to make the SBA 504 process as easy as possible for both you and your borrower.

Big Sky Finance is a Montana CDC, partnering with our Montana Independent Bankers, providing the best financing options available! Check us out at www.bigskyfinance.org or contact Brandon Berger at (406) 869-8403 or berger@bigskyeda.org.