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Pricing SBA 504 Loans

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For financial institutions who participate in the Small Business Administration ("SBA") 504 Loan Program, the following outlines how to price a SBA 504 loan using PrecisionLender. 

A typical SBA 504 plan includes:

  • A loan from a private lender with a senior lien covering 50% of the project cost;
  • A loan from a Certified Development Company ("CDC") with a second / junior lien covering up to 40% of the project cost.
  • The CDC loan is backed by a 100% SBA-guaranteed debenture, and;
  • An equity contribution (e.g down payment) from the borrower for 10% of the project cost.
As the private lender, the SBA 504 loan is essentially a loan with a 50% LTV. The way you'd price this in PrecisionLender depends on if you're using collateral types in PrecisionLender (multi-factor or single-factor risk-based pricing).
  • If you're using collateral types:
    • Follow the normal process for pricing any loan by completing the normal inputs on the opportunity pricing screen.  When you select the appropriate collateral type always set the LTV to 50% to reflect the effective LTV for these SBA loans. Because the LTV% is low at 50%, this should allow for more aggressive pricing as necessary.
  • If you are not using collateral types:
    • Follow the normal process for pricing any loan by completing the normal inputs on the opportunity pricing screen. Typically, you would assign the best quality risk rating for a SBA 504 loan or alternatively, you can have your admin add another risk grade for 'SBA 504' Loans that would have lower capital and lower annual loss provisions to reflect the lower loss given default ("LGD").
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