ELIGIBILITY FRIDAY, MARCH 13 8:30 AM 9:30 AM

ELIGIBILITY FRIDAY, MARCH 13 8:30 AM 9:30 AM

504 Loan Program Eligibility Clarifications

Preapplications Preapplications for eligibility will be accepted by SLPC for the following: Franchises Heavy duty construction equipment Environmental review 912 Review 3

Lease Purchases/Renter Credits Established at the time of the original lease/purchase option apply as language in documents. If stated that the credit will be toward the down payment, it will be treated as the borrower s contribution. If stated that the credit will be applied toward or reduce the purchase price, the purchase price will be reduced by that amount and the credit is not part of the borrower contribution.

Mobile Equipment Examples of Eligible Mobile Equipment must be integral to the business operations and have an existing useful life of the 504 loan term: Cranes Drilling Equipment Vehicles are not eligible: Cars Trucks All Terrain Vehicles Jeeps

Bridge Financing Bridge Financing is Short Term Debt, the purpose of which was to provide financing before an SBA loan is approved until longer term financing could be obtained for any of the costs listed below that are directly attributable to the Project, provided that the financing is for a term of 3 years or less. 6

Interim Financing Interim Financing is any disbursement of funds (other than the borrower s contribution) to finance eligible project costs after the loan is approved by SBA but before the debenture is sold. 7

Borrowed Borrower s Equity Contribution If the borrower s contribution is borrowed: a) liens on the Project Property subordinate to the 504 loan; b) If collateralized by the Project Property, loan may not be paid at a faster rate than the 504 loan (13 CFR 120.912) unless it is approved by the D/FA or designee; and c) borrowed contribution is collateralized by assets other than the Project Property, the borrower must demonstrate ability to repay from business cash flow or other sources. 8

Borrower Injection Source identified at the time of application Evidenced by financial statements or may require additional documentation if not liquid assets. Equity in project property (owned for more than 2 years) must be established by an appraisal at time of application. Borrowed contribution may require documentation to evidence availability. Cost documents must be supplied to support any prepaid eligible project costs. Original lease is required if rent credits are being identified as the borrower contribution. 9

New Business 2 years old or less at the time the 504 loan is approved. a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations, even when older than 2 years If there is a change of ownership, the CDC must review the management and level of debt and make a determination whether an additional borrower s contribution of 5% is necessary. 10

Partner Buy Outs ASM Processing Not Allowed Eligibility of Projects that Result in a Change of Ownership Must be submitted to SLPC as non-asm loan package to ensue all other 504 Loan Program Requirements are met. The 504 Project finances only the costs associated with eligible long-term fixed assets; No goodwill or intangibles are eligible for 504 but could be 7(a); The 504 loan proceeds must not be used to purchase stock or any other ownership interest in a business; and Retained jobs are documented with explanation of potential loss.

Management Agreement Review SLPC reviews management agreements to ensure the small business concern is not under excessive control of the management company if the SBC: Employs directly and not through the management company; Maintains the right to hire and terminate any employee; Has sole control to borrower money on behalf of the SBC; Operating budget must be approved by the owner/borrower; Major expenditures (as defined in the agreement) must be approved by the SBC/owner Can terminate the management agreement with reasonable notice and without penalty. 12

Occupancy Requirements Amount of occupancy required and rentable property that can be leased to commercial or residential tenant: Existing building - 51% of the rentable property, lease up to 49%; For new construction, occupy 60%, lease long term up to 20% and temporarily lease an additional 20% with the intention of using some of the additional 20% within three years and all of it within 10 years. An EPC must lease 100% of the rentable property to an OC. Circumstances may justify allowing a period of ti me after closing of the SBA loan to comply with the above occupancy requirements. (For example, a pre-existing lease may have a few more months to run. In no case may the small business have more than 1 year to meet occupancy requirements.)

Vacant Land All exterior spaces to be included with the 504 project must be integral to the business. For vacant land to be included in the exterior area of an occupancy calculation, there must be a reasonable justification and timeframe under which this land will be used solely for business purposes that are integral to the business, with supporting documentation. 14

Rentable Property Rentable Property is the total square footage of all buildings or facilities used for business operations including common areas. Rentable property may also include exterior space (except parking areas) that is actively used in Borrower s business operations. Examples of exterior space that is actively used in Borrower s business operations include: outdoor storage yards for general contractors, trucking companies, and moving and storage companies; or boat slips and docks for marinas. 15

Multiple Buildings on Single Parcel A project may include multiple buildings on a single parcel. Generally, occupancy requirements must be met for the property as a whole. Condominiums - If the property is structured as a condominium, each unit is separate, and occupancy must be met for each unit. If a business is adding a new building to an existing property, the new construction occupancy requirements must be met for the new building.

Energy Public Policy Goals Up to $5,500,000 for each project that : reduces the Borrower s energy consumption by at least 10%; has plant, equipment and process upgrades of renewable energy sources such as the small-scale production of energy for individual buildings or communities consumption, commonly known as micropower, or renewable fuel producers including biodiesel and ethanol producers.. more than one Project underwriting standards same not reduced by other prior SBA loan amounts outstanding loans

Manufacturing Up to $5,500,000 for each Project for Small Manufacturers NAICS Code in Sectors 31, 32, and 33, and all of its production facilities are located in the United States; more than one Project underwriting standards same The $5,500,000 per Project is not reduced by other prior SBA loan amounts outstanding loans.

Historic Properties on National Register 504 Loan proceeds must have an eligibility determination if the project property is listed on the National Register of Historic Places. CDC should contact their local SBA District Counsel to determine eligibility. Some cases may also be referred to SBA HQ for review. CDC should include all prior historic property clearances or concurrences from local, state and federal sources in the 504 loan application and address in the credit memorandum.

Affiliates Size Determination Disclosure of all Potential affiliates on the individual(s) personal tax returns. Affiliation to meet the size standard and the ability to control are reviewed. 504 Size Standard or Alternate 7(a) Size Standard by NAICS CFR 121.104 clearly includes only receipts (revenues) and does not allow for net losses to be deducted from the calculation. A company cannot have negative receipts (revenues) and therefore the negative numbers representing net loss should be excluded from the calculations. 20

504 Contacts Linda Rusche, Director, Office of Financial Assistance 202-205-6396 linda.rusche@sba.gov Linda Reilly, Chief, 504 Loan Program 202-205-9949 linda.reilly@sba.gov Richard Taylor, Director, SLPC 916-735-1221 richard.taylor@sba.gov Terri Bellmore, Deputy Director, SLPC 916-735-1220 Teresa.bellmore@sba.gov