It took about a year for the owner of AutoMile Motors to buy the property on American Road 1 in Sako.

Justin Jay Gold and a partner were looking for ownership rather than rent, and they wanted to expand the car dealership. The search for the “Automatel” brand was limited to this: one mile long on the road known to automotive distributors and its services.

“Automatic motors must live on auto miles,” Gold says.

Initially, the partners looked at assets in the $ 300,000 range, with 20% to 25% down payment on bank loans at an affordable price, and out-of-pocket payments for future improvements.

He approached NBT Bank in Portland about money management. There, Wayne Morphew, Senior Commercial Bank Officer, is advised to apply to the US Small Business Administration 504 program, which provides loans to borrowers for specific business purposes with a standard bank loan.

Photo / courtesy NBT Bank

NBT Bankis it Wayne Morfou He said the 504 program will help reduce risk by allowing third-party lenders to take the first place.

Morfou Gold met Paul Collins at the Granite State Development Corporation in Portland. Granite State is a non-profit development company that manages the 504 program on behalf of SBA.

Gold 504 learned that long-term, below-market, fixed-rate loans were reduced by up to 10%: 20% to 25% lower than required by regular loans.

That expanded the search. With the construction of a massive 20,000-square-foot building on 1.69 hectares, the loan program allowed Gold to take the $ 1.1 million mark and immediately turn it into a $ 200,000 renovation project.

“Only 10% allowed us to invest $ 1 million in assets,” Gold said. “We are not rich people. So for men like us, we had to spend only $ 110,000 to build our dream. This lowered the entry price in the commercial real estate game.

Building dreams

The goal of the SBA 504 program is to help small businesses build their dreams for long-term and sustainable funding for competent projects.

In a typical 504 project, a third-party lender-bank or credit union pays 50% of the cost of the loan. An SBA-certified development company, or CDC, pays 40% of the mortgage. In most cases, borrowers provide the remaining 10%, although start-up and special purpose projects require up to 20% equity.

The 504 loan can be used for a variety of assets, including purchase or construction:

  • Existing buildings or land
  • New utilities
  • Long-term machines and equipment

Or improvement or modernization –

  • Land, streets, utilities, parking lots, topography
  • Existing utilities

In Maine, the loans are mostly used to buy, build or expand commercial real estate, says Diane Sturge, deputy director of the SB Maine District Office. The program requires a lower interest rate than conventional bank financing, allowing borrowers to have more working capital for their businesses and to make predictable payments through a loan.

Courtesy / American Small Business Administration

Diane Sturgeon is the district director of the Maine District Office of the American Small Business Administration.

“If you normally have a commercial real estate deal, the lender is looking for 20% to 25% cash,” she said. For a $ 1 million deal, this is a lot for a small business owner.

‘I Found Property’

Most deals start with the banks, explains Collins of Granite State.

“The banks are in contact with their creditors,” he continues. “The borrower says, for example, ‘I got the property I want to buy’ or ‘I need this equipment’ or ‘The landlord sells the building we have.’

Once determined, 504 is the right fit for the borrower’s project, CDC and the bank will go through the separate writing process.

Collins said, “I would like to say that the agreement is in line with the bank’s loan analysis, making sure that the agreement complies with the requirements of the SBA 504 loan program.”

Benefits for borrowers include a minimum down payment, which allows them to maintain working capital.

“This is the lifeblood of any business,” says Collins. That will allow them to grow and grow their business.

Another plus – SBA. On real estate, it offers 20 to 25 years of fixed interest on loans and 10 years on equipment, which compares favorably with bank loans, which generally have short-term contracts and interest rates likely to increase again.

Granite State provides 50 to 70 loans per year in Maine and 250 to 300 loans in New England. In February, Granite State partnered with 10 SBA-approved projects, including Marina in Lebanon, a Mexican restaurant in Kitty and a rubber recycling company in Fairfield. Total project costs have increased from $ 235,000 to $ 9 million. The projects included seven different banks.

Collins says, “We have made agreements throughout the territory – Presc Island, Machiavelli, Kittry, Bethel.” “It is run by a bank. Many borrowers have a good relationship with their banks, and when banks realize the opportunity, they bring us in.

Brewery equipment

In recent months, loans have been borrowed from the hospitality, convenience store and manufacturing sectors.

“I am currently working on two manufacturing businesses,” says Collins. Most of the deals I work with are real estate. Only a few discounts each year are tools. Many breweries are large because of the large amount of dollars required for equipment only. ”

One of them was a mast brewery in Westrock. The owner, Ian Dorsey, is looking for more flats and five barrels of “brewing” to make pilot packages: the proposed expansion. As the epidemic cuts off sales, it will need more machinery for the growing retail market. Together, he needs $ 750,000.

Hailing from a financial background, Dorsey has been familiar with SBA programs since 2015. But he did not notice the 504 coverage equipment as well as real estate. His regular lender, Bangalore Savings Bank, introduced Collins to the 504 for low interest rates.

“It was a very flexible program and it was just as smooth and fast,” says Dorsey.

Between the book and its implementation, the process took about six weeks. The parties held the closing ceremony together.

Dorsey looks at the program through cash and small business lenses.

“I think it’s very important,” he said. If those vehicles go, it will hurt the Maine economy and businesses.

Falling into place

Business was booming before the outbreak of the Frog and the El Gastro Pub in West Brooke. The owners wanted to build a second story to build capacity. Guy Cote, one of the bartenders, says they would not have been able to do without 504.

Côte d’Ivoire arrived at the event and spoke with the bank, Everton Credit Union, and the South Maine Financial Agency, Bidford CDC. Kote recalls: “Everything we wanted to do was there.

“Interest rates on ordinary loans alone would not have made the project more accessible,” he said.

It took Kote about six months to get the loan. “There were a lot of hooks to go through,” he says. But he added, it helped a lot to explore the process.

“This can be a time-consuming process,” said Will Armstrong, president of the South Maine Finance Agency. “Because of the federal body, a few more steps are needed than the conventional loan. However, when approved, you will receive low interest rates and low down payment benefits. ”

Armitage explains how and how to get a loan with 504. Say the borrower needs a total of $ 1 million for heavy costs (real estate, renovations, equipment) and $ 50,000 for soft expenses (fees and taxes).

In 504 Finance;

  • Provides a third party lender 50% Or $ 500,000.
  • 504 is class 40% Or $ 400,000.
  • The borrower contributes 10% Or $ 100,000.

With conventional finance;

  • Provides a third party lender 80% From heavy expenses, or $ 760,000.
  • The borrower contributes 20% In addition to heavy costs 100% Soft expenses, or in general $ 240,000, He $ 140,000 More than 504 agreements.

Peace of mind

NBC Bank’s Morfou, which worked on the automobile deal, says the 504 program is beneficial to banks and will help them reduce their risk by allowing them to take their first deposit. At the same time, it says: “Borrowers are not worried about investing their entire lives in a project.” “They don’t have to worry about their eggs hatching.”