What are the eligible sources of borrower equity and can they be borrowed?
The borrower’s down payment must be documented and can be either: • Cash • Equity in land (must be project property) if owned greater than two years…and we can use the appraisal value vs. cost. In some circumstances, SBA will allow for the equity contribution to be borrowed. If the borrower chooses to borrow their down payment for the 504 Project, the following rules apply:The interest rate on the loan for the borrowed equity must be reasonable. • Any lien(s) filed by the lender (for the borrowed equity) on the project property must be subordinate to the 504 loan. • The equity loan cannot be from another SBA loan program. • The borrower may not repay the loan for the equity contribution at a rate faster than the 504. • If the borrowed equity is collaterized by assets other than the project property, the borrower must demonstrate repayment of the loan for the equity contribution from sources other than the cash flow of the business (note: the salary principal received from the applicant
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