Small Business Certified Development Company Program (504)

Stimulating creation of jobs by providing fixed asset financing to small firms for the construction or rehabilitation of owner-occupied or leased premises

The 504 Certified Development Company (504 CDC) Program of the U.S. Small Business Administration (SBA) makes loans available to growing businesses with long-term, fixed-rate financing for major fixed assets through SBA Certified Development Companies (CDCs).

Loans can be used to acquire land, buildings, machinery, and equipment; and for building, modernizing, renovating, or restoring existing facilities and sites.

CDCs are private, nonprofit corporations whose purpose is to contribute to the economic development of their communities by assisting small businesses. There are about 270 CDCs nationwide.

Although the total size of projects using CDC financing is unlimited, the maximum amount of SBA participation in any individual project is usually $1 million. Typical projects range from $500,000 to $2 million, with the average project totaling $1 million. The average SBA participation in any project is $460,000.

Project Examples
A typical project includes approximately 50 percent financing by a bank.

Application and Financial Information
Initial contact should be made through a local CDC.

Interest rates are based on the current market rate for 5- and 10-year U.S. Treasury issues, plus an increment above the Treasury rate, based on market conditions. Maturities of 10 and 20 years are available. Repayment is made in monthly, level-debt installments.

Collateral typically includes a mortgage on the land and the building being financed, liens on machinery, equipment and fixtures, and lease assignments. Private sector lenders are secured by a first lien on the project. The SBA is secured by a second lien. The SBA also requires personal guaranties from all people who own 20 percent or more of the small business borrower.

SBA regulations specify limits on fees that must be paid in connection with SBA financing.

Eligibility, Uses and Restrictions
To be eligible, a business must be a for-profit corporation, partnership, or proprietorship. Under the 504 Program, the business qualifies if its net worth does not exceed $7 million, and its average net profit after taxes does not exceed $2.5 million in the previous 2 years. Loans cannot be made to businesses engaged in speculation, investment in rental real estate, gambling, lending, or nonprofit concerns.

Loan proceeds may be used for fixed asset projects such as:

Buying existing buildings
Buying land in connection with the construction of a building
Making land improvements such as grading, street improvements, utilities, parking lots and landscaping
Construction
Modernizing, renovating or converting existing facilities
Buying machinery and equipment
Paying interest on interim financing
Paying professional fees directly attributable to the project, such as surveying, engineering, architect, appraisal, legal, and accounting fees

The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, refinancing, or financing a plant not located in the United States, its territories, and possessions.

Contact
Contact your local chamber of commerce or the economic development authority in your city, county, or state government who can identify local Certified Development Companies. You may also call any SBA District office for assistance in locating a Certified Development Company.

Check the telephone directory under "United States Government" for the nearest SBA office or call the Small Business Answer Desk (800) UASKSBA. For the hearing impaired, the TDD number is (704) 344-6640.

Internet
www.sba.gov
CDC Program:
www.sba.gov/financing/sbaloan/cdc504.html

Last Updated January 24, 2005