FACTS PAGE

Borrower Injection Information

The Small Business Administration (SBA) considers a property to be "special use" under the 504 Loan Program if it has limited alternative uses and would require significant modifications to be repurposed for a different business. These properties are typically designed for a specific industry or business type and are not easily converted for general commercial use.

Examples of Special-Use Properties for SBA 504 Loans:


  1. Hotels and Motels
  2. Gas Stations
  3. Car Washes
  4. Golf Courses
  5. Bowling Alleys
  6. Marinas
  7. Wineries, Breweries, and Distilleries
  8. Medical Facilities (e.g., Surgery Centers, Assisted Living Facilities)
  9. Funeral Homes and Cemeteries
  10. Amusement Parks and Skating Rinks


Because these properties have restricted marketability, the SBA often requires higher down payments (typically 15% instead of the standard 10%) and additional risk mitigation, such as stronger borrower financials or additional collateral.

The SBA 504 loan prepayment penalty is structured to decline over time and is based on the debenture rate (not the interest rate the borrower pays). Here’s how it works:


SBA 504 Prepayment Penalty Structure

  • Applies only to the CDC portion (40%) of the loan.
  • Penalty lasts for 10 years if the debenture term is 25 years and 5 years if the term is 10 or 20 years.
  • Starts at 100% of one year's interest in Year 1 and declines annually.


Declining Penalty Example (25-Year Term)

  • Year 1: 100% of the year's interest
  • Year 2: 90% of the year's interest
  • Year 3: 80% of the year's interest
  • Year 4: 70% of the year's interest
  • Year 5: 60% of the year's interest
  • Year 6: 50% of the year's interest
  • Year 7: 40% of the year's interest
  • Year 8: 30% of the year's interest
  • Year 9: 20% of the year's interest
  • Year 10: 10% of the year's interest
  • Year 11+: No prepayment penalty



Key Notes:

  • If the borrower prepays in full, they must also pay the outstanding principal along with the penalty.
  • There is no penalty for partial prepayments—only full payoffs.
  • The interest rate used for the penalty is the debenture rate at the time of funding.


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