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Understanding 504 SBA Loans
When a business is looking for a long-term, fixed rate loan for major asset purchases, a good financing vehicle for that is the SBA 504 loan program. Proceeds from these loans must be used to purchase fixed assets such as land and improvements to buildings, streets, utilities, parking lots and landscaping. The loan can also be used to construct a new building and purchase machinery and equipment. If new equipment is bought, it has to have a useful life and for at least ten years.
The 504 SBA Loan operates as a partnership between a third party lender, a certified development company and the borrower. These types of loans offer many benefits to business owners, including low down payments, below market fixed interest rates and long-term financing.
There are several criteria for qualifying for a loan, including the fact that the business must be a for-profit company with a net worth of less than $7 million. The SBA also sets caps on the net income of the business. The business applicant has to be the primary user of a facility, with a minimum percentage of 51 percent for an existing building, and 60 percent for a new building. A new job has to be created for every $35,000 provided by a Certified Development Company. Passive investment companies, non-profit companies, lending institutions and real estate development companies are not eligible for the 504 SBA Loan.
There are three parts to an SBA 504 Loan. The first part is a mortgage provided by a commercial lender, which can take up to 50 percent of the cost. This carries its own interest rate, terms and conditions. The second part is a loan through a certified development company, which can take up to forty percent with a maximum debenture amount of $1,500,000 for most businesses, $2,000,000 when meeting defined public policy goals, and $4,000,000 for eligible small manufacturers. This term can be as long as twenty years, with ten years for equipment. The interest rate for this is fixed and usually below market. The third part of the payment comes from the borrower, at around ten percent of the total cost. If the business is new, or a new facility is being built with the loan, the borrower may have to contribute as much as twenty percent. The down payment can be cash, equity in land, a building or existing equipment.
As the SBA 504 program can only be utilized to finance fixed assets, it is not the most ideal program if a prospective buyer wants to finance the purchase of an existing business. Goodwill, working capital, and other intangible assets are typically not eligible under the 504 program. This is also a program for “new money” and it cannot be used for refinance. If someone needs to refinance or needs to do a highly leveraged loan that is short on collateral, the SBA 7a program may be a viable alternative. Get more information
Oil and Gas Leasing
We may not think much about it because generally they are both under the same category as mineral rights leasing. But oil and gas leasing are actually different from each other.
The first obvious difference would be concerning their forms. Gas, unlike oil which is liquid, is first processed from its gaseous state and liquefied for transport. For the transport a network of pipelines is used. The liquefied gas is transported from its well and passed through a natural gas pipeline. This is because gas is not always used in the area where it is found. A network of pipelines had to be made as a means of transport.
Natural gas can either be intrastate or interstate. It is called intrastate gas if it is produced and consumed in the same state. If it has to be transported from one state to another then it is considered as interstate gas. Interstate gas is federally regulated.
For oil or crude oil, local refineries are often used. So there is not much of a transport issue when it comes to oil production, consumption, and leasing.
The different means of transport for oil and gas would create a significant difference in oil and gas leasing. Transporting gas along the pipeline means a more solid capital investment. The price and demand for gas is also influenced by the season and need for natural gas. This makes gas leasing much harder to regulate and measure than oil leasing.
The gas sales contract is also a factor in gas leasing. The price of gas was first regulated by the federal government. During this time, gas contracts were held with long-term commitments and the contracts could last as long as ten to twenty years. As time went by, the contracts became much shorter in duration, due mainly to the deregulation of the gas prices. Oil leasing, on the other hand, do not suffer the strains that gas leasing has to undergo since it has never had the same regulations as gas. The transport of oil to local and regional refineries also did not prove as troublesome as the transport of gas did.
Regarding royalties, it is easier to to offer royalty with oil leasing. Oil royalties can be paid in either oil or cash. The owner of the land can opt to receive oil from the oil company and market it himself. Most owners, though, still go for oil royalties in cash at the posted price of the oil.
This is not so for gas royalties. Gas royalties are usually paid in cash. This is because gas is more difficult to offer a royalty due to its gas-to-liquefied state. Its volatility makes cash the best option for landowners.
The price of gas is also difficult to give a solid value to because of the fluctuating markets for gas. Many landowners would go for gas royalty in market value, and ensure that the gas royalties are paid in cash.
Despite their differences, oil and gas leasing terms for the royalties can be negotiated in a similar way. Land owners can specify separate royalties for oil and gas production, and they can put in a due date for the receipt of royalty payments. They can also put in an interest charge for late payments.