SBA Loan Programs part 6

Certified Development Company (504) Loan Program

The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area. (Find the CDC in your area.)

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

Maximum Debenture

The maximum SBA debenture is $1,000,000 for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $35,000 provided by the SBA.

The maximum SBA debenture is $1.3 million for meeting a public policy goal. The public policy goals are as follows:

• Business district revitalization

• Expansion of exports

• Expansion of minority business development

• Rural development

• Enhanced economic competition

• Restructuring because of federally mandated standards or policies

• Changes necessitated by federal budget cutbacks

• Expansion of small business concerns owned and controlled by veterans

• Expansion of small business concerns owned and controlled by women

What 504 Loan Funds May Be Used For:

Proceeds must be used for fixed assets such as: purchasing land and improvements, including buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Terms, Interest Rates And Fees:

Interest rates are an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total three (3) percent of the debenture and may be financed with the loan.

SBA Loan Programspart 7

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