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Secti°n 503 Debentures Terms and ConditiOns Collateral The following terms and conditions are applicable to All debentures guaranteed under this program shall be Section 503 debentures: secured to the extent SBA determines as reasonable to ensure repayment. SBA shall require that the certified Purpose--The proceeds of a Section 503 debenture shall development company's required 109o injection be sub- be used to assist an identifiable small business concern to ordinated to the loan made from the proceeds of the 503 finance plant constractinn, conversion or expansion, in- debenture. Usually collateral on 503 development com- cluding the acquisition of land, existing buildings and pony projects include a mortgage on the land and the leasehold improvements· Plant construction includes the building being financed, liens on machinery, equipment acquisition and installation of machinery and equipment, and ~xtures. lease assignments, and personal guarantees Each loan made from the debenture proceeds must be whore appropriate. approved by SBA. How 503 Debentures Are Funded Maximum amount--The SBA-guaranteed debenture may not exceed $500,000. The debenture may not comprise Federal Financing Bank more than 50% of the project's total cost. SBA will provide guaranteed funding to certified devel~ Rate of Interest opment companies by selling 100% SBA-guaranteed 503 debentures to the Federal Financing Bank (FFB). SBA The interest rate on Section 503 debentures shall not be will act as the agent for certified development companies less than a rate determined from time to time by the for the purpose of such sales. The FFB is an instrumen- Secretary of the Treasury tak/ng into consideration the tality of the Federal Government pursuant to the Federal current average market yield on outstanding marke!able · Financing Bank Act of 1973 [FFB ActJ. U.S. obligations with comparable maturities. Such rates can be obtained from your local SBA office. The interest rate on the debenture will be determined by the FFB at the time of each sale based on the cost of like Term term funds to the FFB. The 503 debentures will be pur- chased by the FFB once each month. The maturity on a Section 503 debenture shall not exceed 25 years. The term wilt depend upon the economic life of Eligibility Ihe asset being financed. Contract Terms Eligible Small Business Concerns A small business must meet the following guidelines: The contract between the certified development company and ~he small business concern in each project shall Set forth terms acceptable to the small business concern and Type of organization--It must be a for-proffi corporation, SBA, not to exceed the sum of the following: partnership, or proprietorship. -repayment with interest on the Section 503 debenture Size standards--The net worth of a business may not be and the first mortgage non-federal financing in the in excess of $6 million, and its net profit after taxes must project, have averaged less than S2 million during the previous two years. For a manufacturing company, the business -taxes and insurance on the Plant must have no more than a prescribed number of employ- ees based on SBA size standard regulations. Either stand- -sen,icing costs of the debenture which normally may not ard may be used. exceed one-half of One percent per annum on the out- standing balance of the debenture. -a processin8 tee to cover administrative costs o[ the loan, which may not exceed 1.5% of the amount of the debenture.