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504 Loan Blog

Commercial Finance Update – November 2014
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Giving Thanks (and eating a bunch of food)

Thank You. We say it all the time, and we mean it. We can’t do what we do without the help and good work of others. When real estate brokers, mortgage brokers, other lenders, and past clients refer new clients to us, we’re thankful. When a small business owner chooses us to finance one of the biggest purchases he or she will ever make, we’re thankful. When the other parties involved in our projects work hard to meet deadlines and track down documents and keep the ball rolling, we’re thankful. We get to work with some amazing people every day and we’re very grateful. This is a time of year when it’s okay to be sappy about things like this, but these are things we think and feel and [try to] express every day. And then there’s the food. Rest assured we’ll have a Mercantile Thanksgiving Feast sometime soon. We’re big on sitting down as a family and getting our eat on. It ranks right up there with helping our clients and getting SBA 504 loans to the closing table.

Featured Project: Halski Systems

– $770,000 total project cost
– 90% loan-to-cost financing
– 9,000 sf office building (acquisition and improvements)
– Gainesville, GA
– 6 jobs created/retained

In the year 2000, Lewis Halski worked as a technician for an IT/networking company just outside Atlanta, GA. The business was sold that year because of poor management, but Lewis’s clients continued to contact him for technical consultation. Due to the steady stream of people who were already familiar with his level of expertise and customer service, he founded Halski Systems and operated out of his home. Fast forward to 2014. The company has grown into a multi-million-dollar provider of IT services and computer networking within the North Georgia and Metro Atlanta markets with 30 team members. Along with its sister company, iServer Cloud, Halski Systems provides a cornucopia of services to clients across many different industries.

Halski Systems and iServer Cloud jointly outgrew their former headquarters, which necessitated the search for new space. They selected an 8,000 sf building and drew plans to add an additional 1,000 sf of space as part of the project improvements. Once construction is completed (this loan just closed in October), the operating companies will occupy 5,000 sf of the property. The remaining 4,000 sf is already occupied by two third-party tenants who will provide our client with passive monthly rent income. As we’ve said before, buying/building more space than you need is pretty brilliant. An opportunity to generate passive income and at the same time create space to accommodate future growth? Yes please!

The projects that we typically feature in these updates are bigger ones. Multi-million dollar projects are impressive, and we do plenty of those, but we also do loans under $1 million. These smaller loans are really no less impressive than the bigger ones. At the heart of each and every project we’ve been a part of, there’s a hard-at-work small business owner and usually a team of dedicated people surrounding him or her. The creativity, determination, and smarts which which these entrepreneurs operate is what’s truly impressive. We welcome the opportunity to work with small businesses of all stripes and projects of all sizes. If you know someone who’s interested in owning/building/expanding commercial real estate for a business, let us know how we can help.

Tip of the Month: Finance Everything

One of the really great features of SBA 504 loans is that you can roll certain costs into the loan and finance them rather than pay out-of-pocket. Closing costs and soft costs associated with a project can be included in the total project cost. Furniture, fixtures, and equipment (FF&E) can be included, too. This is a really big deal even for businesses that aren’t equipment-heavy (like a manufacturer might be). As with our featured project this month, you might only have a couple thousand dollars’ worth of FF&E — chairs, desks, file storage, computers, TVs, etc. — but that’s a few thousand dollars you can save on the front end and amortize the equipment over the life of the loan.

We’re a small business just like our clients, and we know that cash is king. One of the reasons we choose to specialize in the SBA 504 loan is that it allows small business owners to become commercial real estate owners with minimal cash flow impact. The benefits provided by commercial property ownership are a big deal (we don’t have to tell you that). If you have questions about how loan-to-cost financing works, what can and can’t be included in the total project cost, or other ways our 504 loans are easier on cash flow than ordinary commercial loans, leave a comment below and we’ll get you some answers.

About SBA 504 Loans

– Up to 90% loan-to-cost financing for owner-occupied commercial real estate
– Office, industrial, medical, flex, daycare, retail, self-storage, and flagged hotel
– Total project costs up to $15 million
– Less impact on cash flow means greater flexibility for property owners

Our SBA 504 loans (sometimes we call them SmartChoice Commercial Loans) have a three-part structure, which is ultimately beneficial for both our small business clients and for third-party lenders we work with. A typical project has a 50-40-10 structure, and we’re dealing with the total project cost which includes the purchase price of land and/or existing building(s), construction costs, soft costs, closing costs, and equipment. This means our clients’ out-of-pocket costs are kept to a bare minimum.

SBA 504 loan structure

The 50% 1st mortgage is an ordinary commercial loan provided by a third-party lender. This is at market rates and can have up to a 30-year amortization. Current rates for this piece will be in the 5.25%–6.25% range.

The 40% 2nd mortgage is a below-market, fixed-rate bond with an SBA guarantee. This piece is fixed for 20 years and has a 20-year amortization. Current rate is 4.87% (as of November 2014).

Small business owners are required to put down as little as 10% of the total project cost, which is two to three times less than ordinary commercial loans require. Equity in land (if it’s already been purchased) and soft costs (like architectural and engineering fees) can count toward the equity requirement. The interest rates from the 1st and 2nd mortgages blend to an effective rate that’s hard to beat with ordinary commercial real estate financing. For a total project cost of $10 million, the blended rate would be 5.30% and the approximate monthly payment would be $57,266 (all rates and figures are current estimates as of when we post this).

For customized loan scenarios and payment calculations, download our SmartChoice Commercial Loan Calculator for your iPhone or Android device today.

Note: Additional equity is required for certain projects involving companies that have been in business less than two years and/or properties that fall into the “special-use” category. Thus, the 50-40-10 structure is typical but not guaranteed.

Construction Loans 101

We’ve been talking a lot about construction lately. The number of construction projects we’ve worked on over the last several years is staggering (at least to us), and we’re talking with more and more business owners who’ve had a tough time finding lenders who’ll take on new construction (or even renovations/improvements in some instances). We want to share our knowledge of and experience with construction financing in hopes of helping more small business owners get the funding they need to grow. We’ll probably even learn something new in the process.

We released the first in a series of videos that feature our President and COO, Shannon Marks, who’s involved in all the construction projects we do here at Mercantile. You’ll get to see the next one sometime early next week. Let us know what questions you have about construction and we’ll get you answers either in direct response or maybe in a video/blog post for all to see. Again, we’re aiming to create some helpful resources so that construction financing becomes more readily available to small businesses that need it.


All caps because we really mean it. Thanks for reading and watching and sharing and referring people to work with us. We’re good at what we do, and that’s not being cocky — we’ve done 546 SBA 504 projects to date, and we’ve learned a lot along the way. But none of our success would be possible without solid relationships. When we sit down to stuff our faces with our favorite Thanksgiving foods, we’re going to say thanks for the opportunity to work with wonderful people and to do meaningful work on behalf of America’s small business owners.

Thank you for taking the time to read this, and Happy [early] Thanksgiving.

– Your 504 Experts

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  1. byron cook says:


    • Justin Fricke says:


      Thanks for reaching out. We’re a nationwide lender and are currently lending in Texas. I’ll email you our Pre-Approval Application. When I get everything from you that’s listed on page 4, I’ll be able to let you know, within 24 hours-48 hours, what kind of financing we can offer.

      Justin Fricke

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