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The Development Company |
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The Small Business Administration offers two main loan programs, one is the SBA 7(a), and the other the SBA 504. There are almost 300 Certified Development Companies that administer the SBA 504 program nationwide. These CDC’s are all privately owned non-profit companies, that are certified not only for the SBA 504 program, but to do economic development in general. The SBA may guarantee up to 40% of an eligible project, not to exceed $1,000,000 ($1,300,000 in rural areas). The small business concern is required to inject at least 10% of the project (15% if a new start-up, and/or 20% if a limited use building). The Private Third Party Lender must provide the remaining amount, usually 50%. The funds for the 40% portion of the project are obtained through the sale of a Debenture (or type of bond), which is pooled with other Debentures nationwide in a certificate, and sold privately to investors. The Debenture is guaranteed 100% by the SBA. Interest rates are fixed for the term of the loan, and are based on current market rates for 5 and 10 year Treasury issues, and are priced at the time of the Debenture sale. Machinery and Equipment terms are 10 years, and Real Estate terms are 20 years. Eligible businesses include those with under 500 employees, or who have a Net Worth of less than $6 million and a Net Profit of less than $2 million. They must be for profit companies with a sound legal purpose, and must demonstrate significant economic impact through the project. An eligible project can include: plant acquisition, new construction, renovations or expansion, acquisition of machinery and equipment, acquisition of furnishings and fixtures, acquisition of land, site improvements, and certain soft costs associated with the above. This program is very effective in conserving the cash flow needs of the business, and in creating a substantial economic impact for the local and national area. In order to comply with the Patriot Act, we are required to verify the identity of each principal and entity participating in the SBA 504 Loan Program. Thanks for your assistance. |
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