SBA's CDC/504 Loan Program

Don't take our word for it - directly from the SBA:

What is the CDC/504 Program?
The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses 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 which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development. Typically, a CDC/504 project includes:

• A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost

• A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the project cost

• A contribution from the borrower of at least 10 percent of the project cost (equity)

This type of setup means that 100% of the project cost is covered either by contribution of equity by the borrower, or the senior or junior lien.

How 504 Loan Funds May Be Used
Proceeds from 504 loans must be used for fixed asset projects, such as:

• The purchase of land, including existing buildings

• The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping

• The construction of new facilities or modernizing, renovating or converting existing facilities

• The purchase of long-term machinery and equipment

The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Eligibility
To be eligible for a CDC/504 loan, your business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a 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.

Maximum Debenture (Total Amount of Loan)
The maximum SBA debenture is $1.5 million when meeting the job creation criteria or a community development goal. Generally, your 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:

• Business district revitalization

• Expansion of exports

• Expansion of minority business development

• Rural development

• Increasing productivity and competitiveness

• Restructuring because of federally mandated standards or policies

• Changes necessitated by federal budget cutbacks

• Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)

• Expansion of small business concerns owned and controlled by women

The maximum debenture for small manufacturers is $4.0 million. A small manufacturer is defined as a company that has its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States. To qualify for a $4.0 million 504 loan, your business must meet the definition of a small manufacturer and accomplish one of the following:

• Create or retain at least one job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the Small Business Investment Act (SBI Act)]

• Improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act]

Collateral
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Interest Rates and Fees
Interest rates on 504 loans are pegged to an increment above the current market rate for 5-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.

Learn More About 504 Loans and Other SBA Programs.

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