The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A certified development company is a non-profit 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. Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to fifty percent of the project costs, a loan secured with a junior lien from the CDC (a 100% SBA guaranteed debenture) covering up to forty percent of the costs, and a contribution of at least ten percent equity from the small business being helped. The maximum SBA debenture generally is $750,000.00 (up to $1,000,000.00 in some cases). The program is designed to enable small business to create and retain jobs; the CDC's portfolio must create or retain one job for every $35,000.00 provided by the SBA. Proceeds from 504 loans must be used for fixed-asset projects such as purchasing land and improvements, including existing buildings, grating, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; while purchasing long-term machinery and equipment. The 504 program cannot be used for working capital or inventory, consolidating or repaying debt or refinancing. Interest rates on 504 loans are pegged to an increment above the current market rates for five year and ten year U.S. Treasury issues. Maturities of ten and twenty years are available. These total approximately three percent of the debenture and may be financed with the loan. Generally, the project assets being financed are used as collateral. Personal guarantees of the principal owners are also required. To be eligible, the business generally must be operated for profit and fall within the size standard set by the SBA. Under the 504 program, the business qualifies as small if it does not have a tangible net worth in excess of $6,000,000.00 and does not have an average net income in excess of $2,000,000.00 after taxes for the proceeding two years. Loans cannot be made to businesses engaged in speculation or investment or rental real estate.
