Our 504 Loan Program

The Certified Development Company Guaranteed Loan program, also known as the Small Business Administration’s (SBA) Section 504 program, helps small businesses finance fixed assets, acquisition of land, buildings, and machinery, as well as  construction, renovation, and expansion of existing facilities and leasehold improvements. The program is operated through SBA-licensed Certified Development Companies (CDC's), private organizations chartered to channel investment capital to small and mid-sized enterprises. CDC's work to identify potential business participants, perform credit analyses, recommend loan approval, and close and service loans that they initiate.

Section 504 loans are subject to rules established by SBA. Each loan covers a specific small business project, and must be collateralized to the extent that SBA considers reasonable to assure repayment. Personal guarantees of all borrowers are also required. A Section 504 loan may not exceed $750,000 unless "significant public policy goals" are involved then the limit may go to $1 million.

A typical 504 loan involves a loan secured by a first lien from a commercial bank or other lending source covering up to 50% of the project. We provide another 40% of the funds with a second lien. The business receiving the loan must provide at least 10% of the financing for the 504 project.

Eligible firms are businesses with a tangible net worth not in excess of $7 million, and have had an average net of tax income of less than $2.5 million over the preceding two years. 504 loans may be used for fixed asset projects such as purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities; or purchasing long-term machinery and equipment.

Section 504 interest rates are determined by adding a fixed increment to the market rate of five and ten year U.S. Treasury issues. Maturities may be 10 to 20 years.

The majority of these loans are obtained by existing businesses looking to expand their operations. Startup businesses occasionally use Section 504 if the type of business involves property ownership (rather than rental), as in the case of a manufacturer who determines that it would be cheaper to purchase real estate than to lease and possibly face relocation expenses, or a business that has a relatively low initial risk, and a significant equity base that reflects a long-term commitment. The program is also tied to job creation and typically a borrower is required to either create or retain one job for every $50,000 of total project cost.

Use of 504 Funds

The uses for a 504 loan include
• Purchasing existing buildings
• Purchasing land and land improvements such as grading, street improvements, utilities, parking lots and landscaping construction
• Modernizing, renovating or converting existing facilities
• Purchasing machinery and equipment that will have a useful life of at least 10 years
• Financing a construction contingency fund
• Paying interest on interim financing
• Paying professional fees directly attributable to the project, such as surveying, engineering, architect, appraisal, legal and accounting fees
• 504 loan funds cannot be used for working capital or inventory, short-term needs, consolidating or repaying debt, refinancing, or financing a plant not located in the U.S., its territories and possessions.

Eligibility for SBA Loan Guarantees.

To be eligible for an SBA loan guarantee, a business must meet all of the following criteria:

• Small enough to fit SBA's Criteria
• A type of business acceptable to the SBA

In addition, the business must:

• Be for profit
• Be independently owned and operated
• Not be dominant in its industry
• Have applied for, and been denied, a conventional loan by a private lender
  

How Small Is a Small Business?

The general rule is that a business is small enough to qualify for SBA assistance if it has less than 500 employees. However, this general rule is subject to industry-by-industry variations. Below is a summary of the industry standards that the SBA uses to define a business as "small." The SBA's definition of "small business" is broad enough to encompass approximately 99 percent of U.S. businesses.

Ineligible Businesses

Certain types of businesses are restricted from applying for or receiving loans directly from or guaranteed by the SBA. Among these are:

• Nonprofit organizations are ineligible to receive assistance except those qualified as sheltered workshops and operated in the interest of workers with disabilities. For-profit businesses owned by nonprofit organizations are eligible.

• Cooperatives are eligible provided size standards are met, the cooperative is a business in and of itself, and it carries on business activities for the financial benefit of its members who must also be eligible small business concerns. Consumer and marketing cooperatives are not eligible.

• Businesses dealing in the creation, origination, expression or distribution of ideas, values, thoughts or opinions currently are not eligible. Specialty stores primarily engaged in selling products that promote or advocate ideas are not eligible. Specialized delivery, distribution or transportation concerns limiting themselves to distribution of ineligible material are also ineligible.

• Any Cable TV system broadcasting live station's or selecting which programs are to be transmitted is ineligible.

• Academic schools are not eligible. However, technical, secretarial, vocational and trade schools are. Nurseries, kindergartens and preschools are also eligible provided they are not primarily (50 percent or more of the time) engaged in teaching academic subjects or ideology.

• Automobile floor planning concerns are not eligible.

• Gambling concerns are not eligible. However, otherwise eligible small business concerns which derive less than one third of their income from the following are eligible: (a) income or commissions derived from the sale of official state lottery tickets under a state license; (b) gambling that is licensed and supervised by state authority in those states where such activities are legal.

• Concerns involved in speculation of any type (including real estate) are ineligible with the exception of a business, such as a grain elevator, which hedges in futures commodity trading in the course of ordinary operations and to protect itself from price fluctuations.

• Concerns primarily engaged in lending or investment are not eligible with the exception of pawn shops which derive a minimum of 50 percent of their income from the sale of merchandise rather than the interest on loans.

• Loans may not be made which would encourage a monopoly or be inconsistent with the accepted standards of freely competitive enterprise.

• Pyramid sales distribution plans are ineligible.

• Loans to applicants engaged in illegal activities or production, servicing or distribution of illegal products are not eligible. In addition, applicants currently incarcerated, on probation or on parole or who have criminal cases pending against them are not eligible. Applicants whose probation or parole has been lifted solely because it is an impediment to obtaining a loan are not eligible.

To submit a loan request please do the following:

First - Go to our Use of Funds Page to tell us your loan needs are.
Complete and submit the Use of Funds Form

Then - Go to our Loan Request Page and complete the application.
Submit the Loan Application Page and any continuation pages.

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