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*A portion of each Small Business Association (SBA) 504 Loan is provided by a Community Development Corporation, known in the financial industry by its initials, CDC. For an average project, a CDC will fund 40% of the total cost.

It is important for business owners to understand exactly what a CDC is and its role in your 504 loan.

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What is

A CDC?

CDCs are non-profit organizations dedicated to revitalizing specific communities. One of the key ways in which CDCs achieve their mission is by promoting economic growth within that community. A tool they can use to stimulate economic growth is supporting local companies and job creation through issuing business loans. CDCs are not government entities, but they do partner with the SBA to extend and guarantee 504 loans.

CDC Criteria for Approval

Approval for a conventional bank loan is based on the underwriting requirements of only one party: the bank. SBA 504 loans are more complex. Loan approval is based on the requirements of all involved parties: the bank, the CDC, and the SBA. So let’s review the SBA requirements for a CDC and how that guides the loan requirements.
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CDC Portion of SBA 504 Loans

So how exactly does a non-profit CDC issue a government guaranteed loan? And what are the requirements? Let’s take a look.

Wait, so I am borrowing from a non-profit?
Partially. For a typical 504 loan, 50% of the project cost is covered by a third-party lender (often a bank). 10% is covered by the borrower’s down payment. And a CDC covers the remaining 40%. For a new business or specialty property, the CDC portion may drop as low as 30%. But in each case, the business is borrowing from two sources: a third-party lender AND a CDC.
Then, what is the role of the SBA?
The SBA guarantees 100% of the financing issued by the CDC. It does not provide the funds, but it guarantees repayment with the full credit of the US government. This makes these debentures very attractive to private investors that are looking for low risk, fixed income streams. As a result, CDCs can easily and rapidly pool and resell these debentures.

To ensure that the loans meet its standard for guarantee, the SBA sets clear guidelines for acceptable applications and reviews each loan. In addition, the SBA charges fees to the program participants to reimburse the Federal Government for the expenses associated with providing the guaranty.

Why does the SBA do this?
The SBA is tasked with the mission to aid, counsel, assist and protect the interests of small business concerns; preserve free competitive enterprise; and maintain and strengthen the overall economy of our nation. The 504 Loan Program achieves this mission by promoting private sector investment in fixed assets, which in turn increases productivity, creates new jobs, generates additional tax revenue, and strengthens the economy as a whole.

CDC Portion of SBA 504 Loans

The SBA reviews documentation collected by each CDC regarding the number of jobs created or retained due to funding. The most aggressive goal is to demonstrate that one fulltime equivalent (FTE) job is created or retained for every $65,000 of project debenture. In other words, the SBA expects 15 FTE employees hired per $1M of CDC issued and SBA guaranteed loan.

Of course, not all small businesses are seeking the maximum loan cap, and even so, a portion of the total loan sought by the business is provided by a private lender. Also, it is important to note that not all industries and localities are evaluated the same. For example, requirements are much more lenient for small manufacturers and businesses in Alaska, Hawaii, State-designated enterprise zones, empowerment zones, enterprise communities, and labor surplus areas. In addition, not all jobs need to be created at the project facility, or even within the community.

As a result of these nuances, the best way to determine if the targets are manageable within your organization is to meet with an experienced agent who will help you evaluate the viability of this option.

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Job Creation May Not Be Required

When a CDC’s total portfolio meets or exceeds the job retention and creation guidelines, it then opens the door for additional funding criteria. Businesses that want to access funds under these expanded criteria will need to provide documentation as to how the goals are achieved. These goals, as detailed below, focus on community development, public policy, and energy reduction.

Improving, diversifying or stabilizing the local economy
A business could demonstrate that it stabilizes the economy by providing jobs in an off season for another employer, reducing the number of workers that migrate to an area for employment during a specified period of time. An industry could also bring higher paying jobs with better benefits to an underserved region. Diversifying a local economy could look like increasing the number of industries in an area, providing a greater variety of products, services, skills, and ideas within a given region.
Stimulating other business development
An employer that requires a number of nearby suppliers as part of its production or service can demonstrate its ability to stimulate industry in a small area.
Bringing new income into the community
Businesses that provide products or services across a broadly distributed region can add revenue to a locality, selling externally and then distributing that revenue locally as wages or purchases.
Assisting manufacturing firms (NAICS Sectors 31 or 33)
These are industries that serve plants, factories, or mills, in addition to businesses that manufacture good by hand, such as bakeries, candy stores, and custom tailors. The businesses may create goods themselves or contract the goods to be created.
Assisting businesses in Labor Surplus Areas
Another key CDC goal is serving areas with a labor surplus. A labor surplus area is defined by the Department of Labor as a civil jurisdiction as that has an average unemployment rate (across the previous two years) of 20% or more above the average unemployment rate for all states (during the same time period).
Achieving a public policy goal

Businesses can also qualify by meeting one of these 10 public policy goals:

  • Revitalizing a business district of a community with a written revitalization or redevelopment plan
  • Expanding exports
  • Expanding the development of women-owned and -controlled small businesses
  • Expanding small businesses owned and controlled by veterans (especially service-disabled veterans)
  • Expanding minority enterprise development
  • Aiding rural development
  • Increasing productivity and competitiveness (e.g., retooling, robotics, modernization, and competition with imports)
  • Modernizing or upgrading facilities to meet health, safety, and environmental requirements
  • Assisting businesses in or moving to areas affected by federal budget reductions
  • Reducing unemployment rates in labor surplus areas
Achieving an energy reduction goal

Businesses can also qualify by meeting one of these 3 energy reduction goals: 

  1. Reducing existing energy consumption by at least 10%
  2. Increasing the use of sustainable designs, including designs that reduce the use of greenhouse gas-emitting fossil fuels or low-impact design to produce buildings that reduce the use of nonrenewable resources and minimize environmental impact 
  3. Upgrading plant, equipment, and processes involving renewable energy sources such as the small-scale production of energy for individual buildings or communities’ consumption, commonly known as micropower, or renewable fuel producers including biodiesel and ethanol. 
A Simple Process

We make the journey from application to funding quick and easy.

1: Apply

It all starts with a short online application.  Within 5 minutes you'll provide our team with all the information needed to unlock your best financing options.

2: Consultation

Our team will reach out and walk you through available options. Then we'll hold your hand through each step in the underwriting process.

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3: Funding

Once underwriting is completed, the loan closes. You receive the funds deposited directly into your company's bank account.

We help you navigate the CDC and SBA Guidelines

Yes, the SBA 504 program has some unique requirements unlike any other loan product. But it also has some very powerful benefits, including low equity requirements, high leverage, long terms, and low interest rates. So how do you navigate all of the intricacies of this loan program?

Our team specializes in SBA 504 loans. In a short conversation you can discover whether you qualify, current rates as of today, and how fast the funding process would proceed for your unique situation. We can even introduce you to the CDC that will cover a portion of your loan. So let’s explore what can be done to finance your business.

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Our team is here to help you access the capital you need to grow.

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(844) LOAN 504
(844) 562 6504

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Fund@AsteriskFunding.com

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Sheridan, WY 82801