Benefits of Section 108 for Business and Real Estate Development Needs

Flexible low-interest long term financing for a variety of business needs and uses. Loan terms up to 20 years at lower interest rates than those offered through conventional financing. Developer deals or income producing properties are also eligible. Minimum loan of $300,000.

Eligible uses:

  • Real property acquisition
  • Housing rehabilitation
  • New construction of commercial real estate
  • Clearance and demolition
  • Site preparation
  • Issuance cost
  • Capitalize interest and reserves
  • Machinery and equipment
  • Working capital

Examples of Eligible Projects

  • Mixed-use new construction, or adaptive-reuse of existing structures (20% of housing)
  • Restaurants
  • Hotels
  • Retail
  • Manufacturing
  • Pharmacies
  • Office space
  • Distribution centers
  • Multifamily rental housing rehabilitation (affordable)

Not sure if your project is an eligible project?

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Is the Section 108 Loan Guarantee Program right for you?

1. Do you have a conventional financing proposal for an eligible project that doesn't quite work or has a financial gap?

Examples of financing gaps:

  • Loan term too short, high interest rate, required Loan to Value (LTV) too low
  • High equity requirements
  • Balloon payment
  • Pre-payment penalties

2. Will your proposed project, or use of the assistance you receive, create one full-time equivalent job per $35,000 of financing received?

  • A minimum of 51% of the full-time equivalent jobs created, must be filled by low-and-moderate-income individuals.
  • However, if your project is located in a census track block group, with 20% or more households below the poverty level, the job creation standard is reduced to one full time job for every $50,000 financing; and, it is presumed that all hires are low-and-moderate-income individuals thereby, eliminating the need to certify the income of new hires.

Use the map below to see if your location is in a census block group with 20% or more households below the poverty level.

3. Do you have collateral to secure the loan amount you are requesting?

Examples of collateral:

  • Liquid funds
  • Real Estate (max LTV 80%)
  • Equity
  • Investments
  • Personal guarantees
  • Personal Property (machinery and equipment)
  • Accounts Receivable and Inventory

4. Do you have at least 3 or more years of experience in business or real estate development?

Ready to get started?

If you were able to answer YES to all of the previous questions, please proceed to the pre-application.

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Project Examples

Small Business

Sawyer and Co.

The City of Austin leveraged $519,000 to fill a financing gap in the redevelopment of an iconic East Austin eatery. Loan funds enabled Eastern Diner, LLC to purchase and redevelop the unoccupied building into Sawyer and Co., a vibrant, modern Cajun-style restaurant.

Case study

City Market/Onion River Co-op

The City of Burlington used loan funds to increase job opportunities and business relocation to the Old North End. The Community Food Enterprise Center, a "green” development, improves economic performance through collaborative resource management.

Project details
Hotel Redevelopment

Farragut Hotel

The City of Knoxville used $2.9 million in Section 108 loan funds to help fund the redevelopment of the historic Farragut Hotel building in downtown Knoxville. The City considered the redevelopment of the Farragut Hotel to be the final puzzle piece in a revitalized downtown on the rise.

Case study

Frequently Asked Questions

Is this a grant?


Is this a forgivable loan?


Is the Section 108 recourse debt?


Is Section 108 financing a direct loan or a guarantee?

A Section 108 Loan Guarantee is a mechanism that HUD uses to pledge the full faith and credit of the US Department of Housing and Urban Development (and the Federal Government) to secure a loan between the private sector and the eligible applicant. HUD is not the lender but is the guarantor of this loan. Although the city secures its funds via a HUD guarantee, it re-lends the proceeds to eligible third-party borrowers. Effectively, the loans to third-party borrowers are collateralized recourse direct loans and do not carry a HUD guarantee.

Can Section 108 loans be used to bridge tax credits equity?

Yes. Section 108 loans can be utilized with tax credits in the capital structure, including but not limited to Historic, Low-Income Housing, and New Markets Tax Credits.

Do CDBG rules govern the Section 108 Loan Program?

For purposes of determining eligibility, the CDBG rules and requirements apply. As with the CDBG program, all projects and activities must either principally benefit low-and- moderate-income persons, aid in the elimination or prevention of blight, or meet the urgent needs of the community. Section 108 loan guarantee funds are included in the determination that 70% of CDBG funds benefit persons of low and moderate-income over a one, two, or three-year period.

Can Section 108 Loans be in subordinated positions or do they have to be in the first position?

As long as the applicant can meet the collateral requirements and tax-exempt financing is not involved, Section 108 Loans can be in a subordinated position (but, usually, not lower than 2nd priority).

Can Section 108 loans be used for Market Rate Housing?

No, section 108 can not be used to develop only market-rate housing. Section 108 can only be used for housing rehabilitation, housing rehabilitation must provide a minimum of 51% of the units to low and moderate-income residents. Mixed-use adaptive reuse projects must consist of a minimum of 20% housing.

How are the interest rates set?

Variable Interest Rate

Effective May 1, 2021, interest rates charged on variable (interim) borrowing is priced at the three-month Treasury Auction Bill rate plus 35 basis points (0.35). View the current 13-week (three-month) Treasury Auction Bill Rates.

Fixed Interest Rate

A good faith estimate of the fixed rate for a 20-year loan is approximately 80-90 basis points over the ten-year Treasury Notes.

Are there any Section 108 Loan fees?

Yes, there is a Loan Guarantee Fee on each transaction. This Fee covers the long-term cost to the federal government of a Section 108 loan guarantee. The amount of the fee is determined annually by HUD in the appropriations process. Currently, the effect of the fee on a 20-year instrument is approximately 25 basis points.

Pre-Application Meeting Request