The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides small businesses requiring “brick and mortar” financing with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. A Certified Development Company (CDC) is a private, nonprofit corporation set up to contribute to the economic development of its community. CDCs work with SBA and private sector lenders to provide financing to small businesses.
Typically, a 504 project includes:
How Funds May Be Used
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
To be eligible for a CDC/504 loan, 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 $7.5 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.
The maximum SBA debenture is $1.5 million when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $65,000 provided by the SBA except for small manufacturers, which have a $100,000 job creation or retention goal (see below). The maximum SBA debenture is $2.0 million when meeting a public policy goal. These include:
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 3 percent of the debenture and may be financed with the loan.
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
For More Information
There are about 270 CDCs nationwide, each covering a specific geographic area. If you are interested in applying for a 504 loan, contact the CDC nearest you. You can get a listing from your local SBA District Office.