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SBA Construction Loan and SBA Construction Loans


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As a result of current banking crisis, very few commercial construction loans are getting funded.  Fortunately, it is still very possible today to obtain an SBA 504 construction loan.  More precisely these loans are known as CDC/504 loans. 

Despite the name, these loans are not made by the Small Business Administration.  Instead, SBA 504 (CDC/504) loans are made as a conventional first mortgage loans with a piggy-back second mortgage that is recorded concurrently. 

The first mortgage is actually made by a conventional lender, typically a bank.  The piggy-back second mortgage is also typically the bank or 504 lender for about 45 days, but then the second mortgage is assigned to a Certified Development Corporation and guaranteed by the Small Business Administration.

After the construction period, the underlying conventional construction loan converts to a long term conventional permanent loan.  This loan is often fixed for five to ten years and is typically amortized over 25 years.  The conventional loan will typically have a term of 10 to 25 years.

The piggy-back second mortgage is always fully-amortized over 20 years and is written at a government-subsidized interest rate about 1.5% lower than the typical conventional commercial first mortgage.

The big advantage of an SBA 504 loan is that the owner only has to contribute 10% of the total cost of the project, including loan fees and other soft costs.  The owner can often include some heavy equipment costs in his total project cost, meaning that he gets to buy some heavy equipment at low commercial real estate loan interest rates.  In contrast, on a conventional commercial construction loan, the owner usually has to contribute 20% to 35% of the total project cost.

Need to find an SBA construction loan right now?  You can apply to several hundred SBA construction lenders in just four minutes using  And C-Loans is free!


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