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Go Green to Fund Multiple SBA 504 Loans with the same Borrower

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May 26, 2015

By John Rockwell
Project Manager, Partner Energy

Borrowers that are relocating a business or improving an existing location are able to satisfy Green SBA 504 loan program goals by implementing energy efficiency projects (i.e., LED lighting, high efficiency HVAC, low-flow showers) that save 10% over the previous location’s energy consumption. Borrowers that are expanding their business to new locations must implement a renewable energy system (i.e., Solar PV panels or Ground Source Heat Pumps) at the new location that generates 10% of the building’s energy consumption.

When a borrower “goes green” on a qualified project, their current SBA loan exposure is reset to zero in the eyes of the SBA for that project. Additionally, SBA allows for a loan amount of up to $5.5 million if the borrower “goes green” by implementing an energy efficiency or renewable energy project.

Qualification for the Green SBA 504 loan starts with a 3rd party professional energy evaluation and verification report. The report enumerates items pertaining to the annual energy usage of the project in question and the projected energy use of either efficiency or renewable projects. Once a compliance path is determined, either energy efficiency or renewable, and a culmination of this data is sent to the SBA as part of the borrower’s loan package.

A project financed using the SBA 504 loan program includes a loan secured with the following capital stack: a senior lien from a private lender that covers up to 50 percent of the project cost, loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) that covers up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business. Private banks benefit from the program because they lend on only 50 percent of the project and are in a more secured position. Borrowers benefit by being required to provide only 10% equity in most cases.

Proceeds from typical SBA 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, construction of new facilities, or modernizing, renovating or converting existing facilities, as well as the purchase of equipment that is integral to business operations.

For more information access this free webinar: http://www.partner-training-online.com/product/sba-504-green-loan-program/

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