by June Portnoy
On Wednesday, September 21st, The Lower Bucks County Chamber of Commerce hosted a Successful Energy Projects Workshop in the Fulton Bank Financial Series 2011. Chuck Evans, Managing Director of the South Eastern Economic Development Company of PA (SEEDCOPA) spoke about various government energy financing options. He explained how SEEDCOPA can assist in applying for a United States Small Business Administration (SBA) 504 loan.
The “504” is the Economic Development Program of the U.S. Small Business Administration. The Energy Independence and Security Act of 2007 was passed to move this country toward greater energy independence and security. The three new public policy goals included in this act include reducing energy use 10%, sustainable design, and renewable energy production.
There is a new $5 million maximum for all 504 projects and a $5.5 million maximum for manufacturers of energy efficiency projects. For an existing company, a maximum of 40% of the project cost can be obtained through SBA 504 or $1,500,000, whichever is less. The loan carries a fixed rate of interest with a term of 20 years for real estate and 10 years for equipment. It is typically secured by a second lien.
In general, 50% of the project costs come from a private financial institution. This is a conventional bank loan secured by a first lien on the assets. The bank provides interim financing to the applicant from the date of settlement until the SBA 504 debenture is sold. A minimum of 10% comes from equity.
Chuck discussed the SBA 7A, another option for small business clients wanting a loan for energy efficient improvements. When taking advantage of this loan, SBA guarantees up to 75% of the amount of a loan up to $5 million. The SBA guarantee enables a lending institution to entertain a loan it might not otherwise, due to collateral and/or existing cash flow. Prior to packaging on SBA 7A Guarantee application, SEED requires that a commitment letter stating that financing will be provided subject to an SBA guarantee. The guaranteed loan term is 20 years for a SBA 504 versus 25 years for an SBA 7A.