Scientific Capita Group, Inc.- A National Hotel Finance Company- Green SBA 504 loan for hotels

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SBA 504 Going Green- Limit Increase to $5MM Per Hotel Transaction

November, 2010
Per the new SBA regulations, the SBA limit of 5 million can be applied to each project that is qualified under the SBA rules as energy saving program. In this contect, a sponsor can have multiple SBA projects each at 5 million maximum limit.

March 24, 2009

The current $2 million ceiling on SBA 504 would in general allow a purchase of a 5MM hotel with the following structure:

    First position loan by a lender     50%     $2,800,000
    Second position loan by SBA      35%     $2,000,000
    Injection by the investor           15%     $860,000
    Total Transaction                       100% $5,700,000

In the above scenario, the maximum first Trust Deed is considered as 50%. The lender on that loan is able of course to increase the advance rate and to increase the loan amount for larger transactions. The SBA portion however will remain at the 2MM ceiling.

Operators who are willing to retrofit a current hotel or build a new hotel with new renewable energy technologies where the energy consumption is reduced by 10% are now qualified for SBA second position loans of up to $4MM. SBA 504 loan can now possibly be structured as follows:

    First position loan by a lender   50%   $5,700,000
    Second position loan by SBA   35%   $4,000,000
    Injection by the investor          15%   $1,700,000
    Total Transaction                    100%   $11,400,000

Reduction in the energy consumption may be achieved by installing solar panels, replacing the insulations, windows, HVACs, etc. It appears that the most popular and practical solution is to install solar panels.

For simplicity the SBA fees are not considered in the above loan scenarios.