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Process of a REAL Loan
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What Is the REAL Loan Process Like?

Some borrowers may be interested in understanding all of the steps that go into obtaining a 504 loan for their commercial property or machinery needs prior to obtaining the loan. Luckily for these borrowers, the REAL process is as easy as 1, 2, 3:

Once a CDC loan officer approves a REAL loan, the CDC’s board of directors / credit committee must approve the application and submit it to the SBA. In a few days’ time, the SBA approves the loan and the CDC’s banking partner receives a commitment (subject to specified conditions) to provide the loan.

The banking partner funds the entire project (minus the down payment) if the loan’s purpose was building construction/renovation. Within 30 to 60 days of project completion, the REAL loan provides 40 percent financing, thereby reducing the bank’s portion of the loan to 50 percent in the event of default. (For equipment purchases, the takeout loan may vary.) In most cases, the Small Business Administration can only collect on REAL loan collateral after the lender is paid in full.

CDCs work with the small business borrower to process, approve, close and service the loan. 504 loans are funded by monthly bond (debenture) sales to investors on Wall Street. The SBA’s Central Servicing Agent (currently Wells Fargo) is responsible for wiring the proceeds to banking partners and providing amortization schedules to borrowers.

NOTE The actual interest rate the borrower pays is calculated based on the debenture rate for the month in which the loan is funded, a CDC fee of .625 percent, the Central Servicing Agent fee of 1 percent and the SBA Borrower Fee that changes each year. You can see that the SBA 504 loan offers extremely attractive interest rates for 20-year financing. When added to the bank’s interest rate on their first lien, the blended rate and 20 year term offers real advantages to the borrower.


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