Section 501 of the Recovery Act has authorized SBA to eliminate two fees on SBA 504 loans. The processing fee of 1.5% on the SBA debenture loan (2nd Trust Deed) and the Participation fee that is a half point fee charged by the lender on the first Trust Deed on behalf o the SBA. This act is retroactive to 2/17/2009 and will remain in effect until the budget for this act is depleted which is expected to be around December of 2009. The following table shows fee calculations for three scenarios prior to the elimination of the fees by the Recovery Act:

 

	SBA Fees BEFORE the Recovery Act - Three Purchase Scenarios
	Hotel Purchase Price	$2,857,143	$4,000,000	$5,000,000
	First Trust Deed by the Bank (50% Loan)	$1,428,572	$2,000,000	$2,500,000
	Second Trust Deed by SBA (35% Loan max.)	$1000,000	$1,400,000	$1,750,000
	SBA 504 Fee - Funding Fee of 1/4 point	$2,500	$3,500	$4,375
	SBA 504 Fee - Processing Fee of 1.5 point	$15,000	$21,000	$26,000
	SBA 504 Fee - Underwriting Fee	$4,086	$5,720	$7,151
	Total SBA Fees and assessed by SBA added to the 2nd Trust Deed	$21,586	$30,220	$37,776
	Bank Fee- Participation CDC Fee of 0.5 point of the First Trust Deed collected by the bank or possibly added to the 2nd Trust Deed loan	$7,143	$10,000	$12,500
	Total SBA Fees	$28,729	$40,220	$50,276

The following table shows the new calculations of the SBA 504 fees after the elimination of the Processing and the Participation fees by the Recovery Act:

 

	SBA Fees AFTER the Recovery Act - Three Purchase Scenarios
	Hotel Purchase Price	$2,857,143	$4,000,000	$5,000,000
	First Trust Deed by the Bank (50% Loan)	$1,428,572	$2,000,000	$2,500,000
	Second Trust Deed by SBA (35% Loan)	$1000,000	$1,400,000	$1,750,000
	SBA 504 Fee - Funding fee of 1/4 point	$2,500	$3,500	$4,375
	SBA 504 Fee- Processing Fee ELIMINATED	$0	$0	$0
	SBA 504 Fee - Underwriting fee	$4,026	$5,637	$7,046
	Total SBA Fees assessed by SBA	$6,526	$9,137	$11,420
	Bank Fee- Participation fee ELIMINATED	$0	$0	$0
	Total SBA Fees	$6,526	$9,137	$11,420

You may read more details by visiting the SBA site: Implementation of Section 501 of the Recovery Act - Fee Elimination Provisions effective 3/16/2009

Note 1: The program is effective until the budget for this program which is $3.6 Billion runs out which is expected to be December of 2009

Note 2: The Participation fee is charged by the bank that is offering the first Trust Deed loan. The bank charges half point minimum and will offer that to SBA processing office called a "CDC". If you have had a 504 loan in the past, you may not have realized that this fee had gone to SBA. The bank generally charges between 1 to 1.5 points of which the bank gives the half point to the CDCs.

Note 3: For simplicity, the SBA closing fee, any escrow and title, and other miscellaneous fees are not included in the above calculation. Detailed fee analysis is offered by the SBA during the underwriting process and this article is not meant to replicate the detailed SBA underwriting process.