Spring is when we see a lot of projects get underway across South Dakota—construction starts, expansions begin, and timelines move quickly. In many cases, lenders step in with short-term or bridge financing to help their clients get projects moving.
What’s important to keep in mind is that this doesn’t close the door on SBA 504.
If a project is still within the appropriate timing and structure, a bridge loan (with a term of three years or less) can be incorporated into an SBA 504 financing structure. As always, the SBA 504 loan serves as take-out, long-term financing once a project is complete.
Because of this, it’s important to get the SBA 504 application approved as early in the process as possible.
In addition to the core fixed asset project costs, SBA 504 allows for several items commonly associated with construction projects, including:
- Contingency (up to a maximum of 15% of project construction costs)
- Professional fees (such as appraisal, environmental, and title insurance)
- Interim construction interest
These eligible costs can be included in the total project structure, helping ensure the full scope of the project is financed appropriately.
At project completion, when permanent financing is put in place, the borrower benefits from the low equity injection requirement (as little as 10%) and the long-term, fixed interest rate on up to 40% of the total project costs. This results in stable, predictable debt service and allows the borrower to retain as much cash as possible on their balance sheet.
If you have a project underway or recently started, we’re always happy to take a look and talk through whether SBA 504 could be a fit.