The 504 Certified Development Company Program enables growing businesses to secure long-term, fixed-rate financing for major fixed assets, such as land and buildings. A certified development company is a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 290 CDCs nationwide. The program is designed to enable small businesses to create and retain jobs; the CDC's portfolio must create or retail jobs for every $35,000 of debenture proceeds provided by the SBA.
Typically, a 504 project includes:
The maximum SBA debenture generally is $750,000 (up to $1 million in some cases).
Proceeds from 504 loans must be used for fixed-asset projects such as:
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
Interest rates on 504 loans are based on the current market rate for five-year and 10-year U.S. Treasury issues plus an increment above the Treasury rate, based on market conditions. Only maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan.
Generally the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
To be eligible, the business generally 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 $6 million and does not have an average net income in excess of $2 million after taxes for the preceding two years, or if it meets standard 7(a) criteria. Loans cannot be made to businesses engaged in speculation or investment.