The 504 Certified Development Company (CDC) 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.
CDC provides to small businesses
A CDC must operate in and adequately service its Area of Operations. It must market the 504 program, package and process 504 loan applications, and close and service 504 loans. A CDC's loan portfolio must be diversified by business sector.
A CDC may provide small businesses with financial and technical assistance, or may help small businesses obtain such assistance from other sources, including preparing, closing, and servicing loans under contract with Lenders in SBA's 7(a) program.
A CDC also may loan amounts to the Borrower equal to the value of all or part of the Borrower's contribution to a Project in the form of cash or land, including site improvements, previously acquired by the CDC.
Applications for Certification as a CDC
A CDC must be a non-profit corporation in good standing. Applicants for certification as a CDC must apply to the SBA District Office serving the area in which the applicant has or proposes to locate its headquarters. A CDC must have a designated Area of Operations, specified by the CDC and approved by SBA. There can be only one statewide CDC in each state, which must foster economic development throughout the state and provide 504 assistance to areas not adequately served by other CDCs. .An SBA District Office may accept an application for a county only if:
(1) There is no CDC that includes the county in its Area of Operations;
(2) Any CDCs that include the county in their Areas of Operations have not averaged together at least one 504 loan approval per 100,000 population per year averaged over the 24 months prior to SBA receiving a complete application from the applicant; and the county has not become part of another CDC's Area of Operations within the prior 24 months; or
(3) The county is part of the Area of Operations of only one CDC; the county has a population of 100,000 or more; the county has not become part of an Area of Operations within the prior 24 months of another CDC; the applicant is incorporated in the State where the county is located; and the CDC that includes the county in its Area of Operations submits a statement of no objection to the application.
An applicant whose application has been accepted must then demonstrate that it satisfies the certification and operating criteria in Secs. 120.820 through 120.829 and the need for 504 services in the Area Of Operations Applications must also include an operating budget approved by the applicant's Board of Directors, and a plan to meet CDC operating requirements (without specializing in a particular industry). An applicant's proposed Area of Operations may include Local Economic Areas. An applicant may not apply to cover an area as a Multi-State CDC. The AA/FA shall make the certification decision.
Public notice of CDC certification application
(a) As part of the application process, the applicant must publish a notice in a general circulation newspaper in the proposed Area of Operations, including the name and location of the proposed CDC, its purpose and Area of Operations, and the names and addresses of its officers and directors. The applicant shall send a copy of the notice to SBA. The notice shall provide the public at least 30 days to submit written comments to the District Office. The SBA shall consider the comments in making its decision on the application.
(b) CDCs serving the proposed Area of Operations shall be directly notified and given at least 30 days to comment.
Probationary period for newly certified CDCs
(a) Newly certified CDCs will be on probation for a period of two years, at the end of which the CDC must petition for:
(1) Permanent CDC status;
(2) A single, one-year extension of probation; or
(3) ADC status.
(b) SBA will consider failure to file a petition before the end of the probationary period as a withdrawal from the 504 program. If the CDC elects ADC status or withdrawal, it must transfer all funded and/or approved loans to another CDC, SBA, or another servicer approved by SBA.
CDC membership
A CDC must have at least 25 members (or stockholders for for-profit CDCs approved prior to January 1, 1987). The CDC membership must meet annually. No person or entity may own or control more than 10 percent of the CDC's voting membership (or stock). Members must be representative of and provide evidence of active support in the Area of Operations. Members must be from each of the following groups:
(1) Government organizations responsible for economic development in the Area of Operations and acceptable to SBA;
(2) Financial institutions that provide commercial long term fixed asset financing in the Area of Operations;
(3) Community organizations dedicated to economic development in the Area of Operations such as chambers of commerce, foundations, trade associations, colleges, or universities; and
(4) Businesses in the Area of Operations.
A CDC that is incorporated in one State and is operating as a Multi-State CDC in another State must meet the membership requirements for each State.
CDC Board of Directors
The CDC must have a Board of Directors chosen from the membership by the members, and representing at least three of the four membership groups. No single group shall control. No person who is a member of a CDC's staff may be a voting member of the Board except for the CDC manager. The Board Members must be responsible officials of the organizations they represent and at least one member other than the CDC manager must possess commercial lending experience. The Board must meet at least quarterly and shall be responsible for CDC staff decisions and actions. A quorum shall require at least 5 Directors authorized to vote. When the Board votes on SBA loan approval or servicing actions, at least one Board Member with commercial loan experience acceptable to SBA, other than the CDC manager, must be present and vote. There must be no actual or apparent conflict of interest with respect to any actions of the Board.
(a) The Board may establish a Loan Committee of non-Board Members that reports to the Board. Loan Committee members must include at least one member with commercial lending experience acceptable to SBA. All members of the Loan Committee must live or work in the Area of Operations of the State where the 504 project they are voting on is located unless the project falls under one of the exceptions listed in Sec. 120.839, Case-by-case extensions. No CDC staff may serve on a Loan Committee. A quorum must have at least five committee members authorized to vote. The CDC's Board must ratify the actions of any Loan Committee. There must be no actual or apparent conflict of interest with respect to any actions of the Loan Committee.
(b) If the CDC is incorporated in one State and is approved as a Multi-State CDC to operate in another State, the CDC must meet the Board requirements for each State and must have a Loan Committee for each State.
Professional management and staff
A CDC must have full-time professional management, including an Executive Director (or the equivalent) managing daily operations. It must also have a full-time professional staff qualified by training and experience to market the 504 Program, package and process loan applications, close loans, service, and, if authorized by SBA, liquidate the loan portfolio, and sustain a sufficient level of service and activity in the Area of Operations. CDCs may obtain, under written contract, marketing, packaging, processing, closing, servicing or liquidation services provided by qualified individuals and entities who live or do business in the CDC's Area of Operations under the following circumstances:
(a) The CDC has at least one salaried professional employee that is employed directly (not contracted) full-time to manage the CDC. A CDC may petition SBA to waive the requirement of at least one full-time manager if:
(1) The CDC is rural and has insufficient loan volume to justify its own management, and another CDC located in the same general area will provide the management; or
(2) The management of a CDC is to be contributed by a non-profit affiliate of the CDC that has the economic development of the CDC's Area of Operations as one of its principal activities. In the latter case, the management contributed by the affiliate may work on and operate other economic development programs of the affiliate, but must be available to 504 customers during regular business hours.
(b) SBA must pre-approve contracts the CDC makes for managing, marketing, packaging, processing, closing, servicing, or liquidation functions. (CDCs may contract for legal and accounting services without SBA approval, except for legal services in connection with loan liquidation or litigation.)
(c) Contracts must clearly identify terms and conditions satisfactory to SBA that permit the CDC to terminate the contract prior to its expiration date on a reasonable basis.
(d) The CDC must provide copies of these contracts to SBA for review annually.
(e) If a CDC's Board believes that it is in the best interest of the CDC to contract for a management, marketing, packaging, processing, closing, servicing or liquidation function, the CDC's Board must explain its reasoning to SBA. The CDC's Board must demonstrate to SBA that:
(1) The compensation under the contract is only from the CDC, reasonable and customary for similar services in the Area of Operations, and is only for actual services performed;
(2) The full term of the contract (including options) is reasonable; and
(3) The contract does not evidence any actual or apparent conflict of interest or self-dealing on the part of any of the CDC's officers, management, and staff, including members of the Board and any Loan Committee.
(f) No contractor (under this section) or Associate of a contractor may be a voting or non-voting member of the CDC's Board.
Minimum level of CDC lending activity
A CDC must provide at least two 504 loan approvals each full fiscal year. A CDC's portfolio must reflect an average of one Job Opportunity per $35,000 of 504 loan funding.
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