Incentives Directory

SBA 504

The SBA 504 loan program offers subordinated, fixed rate financing to healthy and expanding small businesses. Long-tem, fixed rate financing (10-20 years) and reasonable rates (near long-term U.S. Treasury bond rates), make the 504 Program an attractive and effective economic development financing tool.

Type of Financing: The 504 Program is available for fixed asset purchases only: land, building, and equipment with a useful life of 10 years or more. Working capital, inventory, and venture capital are NOT eligible.

SBA 504 financing is "permanent" take-out mortgage financing. Interim or construction financing must be utilized to complete the project.

Eligible Businesses: Eligible borrowers are user, for-profit businesses. Ineligible businesses include not-for-profit, passive investment and real estate companies, financial institutions, developer/landlord arrangement, ventures, private recreation facilities and unregulated media firms.

Size Requirements: The net worth of an eligible business may not exceed 8.0 million. Its net profit after taxes must not have exceeded an average of $3.0 million during the previous two years. Should a company fail to meet these standards, the company will still be considered a small business if it meets size requirements, based on the number of employees, which vary among the different industries depending on NAICS codes.

How the Program Works
Structure: Typically the 504 loan has a 50-40-10 structure where 50 percent of the project is financed by a regulated lender that receives a first mortgage position on all project collateral. Forty percent is provided by the South Dakota Development Corporation, which sells debentures guaranteed by SBA and receives a subordinated collateral position. The remaining 10 percent is provided by the borrower in a cash equity injection. This is the minimum equity contribution and depending on the project, and available personal resources, the SDDC may require a larger contribution.
*Start-up businesses or single-purpose facilities require an additional equity contribution of 5 percent. If the business meets both of these criteria, a 20 percent equity contribution is required.

Regulated Lender: At least 50 percent of the project cost must be provided from "non-federal" sources, such as commercial banks, S&Ls, saving banks, insurance companies and equity contributions. The lender will receive a first position on the assets acquired with the loan proceeds. The maturity of this loan must be at least 7 to 10 years, depending on the amortization of the SBA loan, and have an interest rate which is "legal and reasonable,” fixed or variable and may be renegotiable. The renegotiation formula must be stated in advance.

South Dakota Development Corporation: Eligible businesses may borrow up to $5,000,000 with a minimum of a $50,000 loan being obtained through the SDDC. Loan amounts available for small manufacturing are $5,500,000. The SDDC portion of the project may not exceed 40 percent of the eligible project costs, nor can the SDDC portion exceed the first mortgage amount. The goal of the program is to create at least one job for each $65,000 of debenture or one job for each $100,000 for small manufacturing. Personal/corporate guarantees are required of all individuals or entities having 10 percent or more ownership in the business and may be required for managers who occupy key positions that are vital to repayment ability, regardless of their ownership percentages.

The SDDC sells debentures, guaranteed by SBA, with a 10 or 20 year maturity based upon the weighted average of the useful life of the assets purchased with the loan proceeds. The rate of interest is fixed for the term of the loan and determined at the time of sale of the debenture, which is based on the current average market yield. There are various one-time fees associated with the 504 loans. The one-time processing fees total approximately 3.25 percent and are added to the loan amount. On-going servicing fees are added to the interest rate and include fees to the Central Servicing Agent, the SDDC and SBA. In addition, a 0.5 percent fee is payable by the first mortgage lender to the SBA.

Equity Injection: The borrower generally provides at least 10 percent of the project cost in the form of a cash equity injection.

Category: State Incentives, Grants & Loans

More State Incentives, Grants & Loans

Purpose The APEX (Agricultural Processing and Export) Loan Program is designed to assist companies in communities with a population of 25,000 or less, which add value to raw agricultural products through processing, or export a minimum of 75 percent of its product to entities outside th... Learn More
Growing Small Communities in South Dakota The state’s CDBG program is funded through an annual formula allocation from the US Department of Housing and Urban Development (HUD). The program allows the state to fund a variety of different projects in small cities and rural areas. Al... Learn More
Purpose The Ethanol Infrastructure Incentive Program was designed to alleviate retailers across the state from costs associated with the installation of blender pumps. The State of South Dakota has allocated $3.5 million over the next five years to get the program on its feet. In 2012, $950,00... Learn More
Following the recession of the early 1980s, the Future Fund was developed in 1987 with $1.8 million to invest in South Dakota’s workforce and build its economy. It helps to support the training of employees, retraining of employees during layoffs, business recruitment, and research an... Learn More
The MicroLOAN South Dakota Loan Program is a partnership with the South Dakota Development Corporation, and Governor's Office of Economic Development. These loans are made available to small businesses within the borders of South Dakota and South Dakota residents, including main street and retail operations... Learn More
Purpose We give new meaning to the phrase "ready, willing and able." Our REDI (Revolving Economic Development and Initiative) Fund is designed to help promote job growth in South Dakota. This low-interest loan fund is available to start-up firms, businesses that are expanding or relocating an... Learn More
Program Overview Business/commercial loans for businesses needing working capital Term of 1 to 3 years Loan amount up to $1 million with a minimum amount of $20,000   Eligible Borrowers Businesses seeking new financing Certified development financial institutions Meet US Treasury guidelines Only have one WORKS loan program at a time for a company Ineligibl... Learn More
Purpose In 1999, a $3 million fund was created specifically to assist in funding feasibility and marketing studies for prospective value-added ag business. This Subfund of the REDI Fund is just one step toward improving value-added ag in South Dakota. By partnering with the Department of Agriculture... Learn More