Cdc 504 - Sba Loan Program

CDC/504 Loan 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