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 $50,000 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 FUNDS MAY BE USED FOR:
Proceeds from 504 loans must be used for fixed asset projects
such as: purchasing land and improvements, including existing
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 on 504 loans are pegged to 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 approximately
three (3) percent of the debenture and may be financed with the
loan.
COLLATERAL:
Generally, the project assets being financed are used as collateral.
Personal guaranties of the principal owners are also required.
ELIGIBLE BUSINESSES:
To be eligible, the business must be operated for profit and fall
within the size standards set by the SBA. Under the 504 Program,
the business qualifies as small if it does not have a tangible
net worth in excess of $7 million and does not have an average
net income in excess of $2.5 million after taxes for the preceding
two years. Loans cannot be made to businesses engaged in speculation
or investment in rental real estate.