Programs

SBA 504 LOAN PROGRAM

The SBA 504 Loan Program was established for the purpose of stimulating and fostering local economic development. The program provides for up to 90% financing on eligible projects. Businesses may utilize the 504 loan proceeds for the acquisition of real estate and/or long-lived equipment.

Who is eligible for 504 assistance

* "For-profit" corporations, partnerships and proprietorships
* Independently owned and operated businesses that are not dominant in their fields
* Businesses whose net worth is less than $7.0 million and whose average net income after taxes is less than $2.5 million, or that otherwise meet SBA size standards
* Businesses that expect to create new employment opportunities after the extension of the loan (1 job for every $50,000 of 504 loan proceeds), or which meet other Public Policy Objectives of the 504 Program
* Businesses that expect to occupy and use at least 51% of the property being acquired, or at least 60% of newly constructed projects

Project Structure & Loan Amounts

* Borrower provides cash equal to at least 10% of total project cost
* CDC provides loan proceeds of up to 40% of total project cost, secured by a junior lien
* Lender provides loan proceeds of about 50% of total project cost, secured by a senior lien
* Maximum SBA participation is $1.3 million; minimum is $50,000
* Most projects range in size from $300,000 to $5 million
* Total project size is unlimited

Rates & Terms

* CDC loans are fixed rate loans that are fully amortized over their term; the interest rate is determined at the time of funding. Loan terms of 20 years and 10 years are available.
* Fees for the CDC loans are established by the SBA: administrative fees (2.75%) incurred at inception are included in the loan proceeds; servicing fees incurred over the life of the loan are included in the loan payments.
* Senior lenders are allowed wide latitude in structuring their loans. Interest rates may be fixed or variable, using any index available, points and fees may be included.
* Senior loans must have terms of at least 10 years (if CDC loan is 20 years) or 7 years (if CDC loan is 10 years), but may be structured with longer amortization periods and extended due dates.

Borrower Benefits

* Allows the business to buy assets that appreciate in value, instead of renting or leasing them
* Eases cash flow due to extended terms; loan payments can be lower than rent payments
* Maintains liquidity because of high loan to value ratios; 10% cash injection is typical
* Reasonable fixed interest rates on CDC loan are the same throughout the nation
* Senior loan terms can be arranged to suit individual borrower requirements
* Provides permanent facilities with room for expansion without risk of future rent increases

What Does CDC Consider

* Historical earnings and repayment ability
* Projected earnings and repayment ability
* History and experience of the business and the owners
* Credit agency reports of the business and the owners
* Capitalization of the business (equity in relation to debt)
* Collateral available to secure the loan
* Special Note: CDC and SBA review all projects individually on their merits