CDCs, also known as Certified Development Companies, play important roles in SBA loan financing efforts. CDCs even have their own special SBA loan type, called the 504 program. However, CDC SBA loan programs are not for everyone. CDCs (non-profit corporations) are created, certified and regulated by the SBA to offer financing to small business with a community economic development focus. With over 260 CDCs nationwide, each with a defined “Area of Operations,” all states in the U.S. have at least reachable office.
Through February 2012, CDCs have been responsible for around $50 billion in 504 SBA loans, which have created over 2 million jobs. SBA’s community based partners has been an unqualified success in generating economic development around the nation.
504 SBA loans have a consistent structure. In most cases, 40 percent of the financing comes from the SBA. Participating lenders provide up to 50 percent of the SBA loan, while the borrower contributes 10 percent of the project cost. With up to 90 percent financing, fixed interest rates and longer terms (there are no balloon payments), these SBA loans are attractive to businesses hoping to buy real estate, purchase long-term equipment or construct new facilities.
These CDC SBA loans can also be used to modernize, renovate or convert existing buildings to grow a business, adding new jobs. Please note that, unlike other SBA loans, the 504 program cannot be used for working capital, purchasing inventory or consolidating/repaying outstanding debt. The 504 SBA loan is also not for refinancing, unless the funds are part of facility expansion or renovation projects.
To be eligible for 504 SBA loans, your business must be a for-profit company and meet SBA size standards. Under current eligibility rules, if your business has a tangible net worth of $15 million or less and an average net income of $5 million or less (after taxes), you are eligible for 504 financing. The maximum amount of this SBA loan program is a generous $5 million.
Additionally, the current rule-of-thumb is that your business should create one new job for every $65,000 guaranteed by the SBA. Alternatives to this requirement include businesses with certain community development and improved public policy goals or businesses that are upgrading facilities to improve health, safety and environmental standards.
To apply for funding for your small business, use the form on the right to begin the application process.