504 Benefits to Lenders

The 504 loan program offers many benefits to lenders. They include:

  • With 504, banks have the first lien position and typically a 50% loan-to-value ratio, thus minimizing collateral risk.
  • The 504 program can help banks with management of overall lending limits and industry exposure.
  • With 504, banks can lend to more customers. By reducing lending exposure on each loan, banks can reach more customers, while simultaneously reducing default risk.
  • The 504 program can help banks gain new customers. Because the 504 program is designed to help healthy growing businesses purchase owner occupied real estate, a bank can establish a solid, new, long term customer by offering the 504 loan option.
  • There is an active secondary market for 504 first mortgage loans, so a bank could reduce their exposure, while retaining the customerís primary banking relationship.
  • The 504 offers banks the opportunity to strengthen core earnings. The pricing of the bankís portion of the loan is at its discretion. In addition, the customer only has to put 10% down on the project, which means more of the customerís funds remain on deposit, enhancing earnings.
  • Banks that participate in SBA 504 loans are eligible for Community Reinvestment Act (CRA) credit on certain projects.