BLOG: Loans — CDC/504 Loan

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The CDC/504 loan program is a long-term financing tool for economic development within a community. More specifically, they provide financing for major fixed assets, such as equipment or real estate.  A Certified Development Company (CDC) is a private, for profit corporation set up to contribute to the economic development of its community. CDCs work with SBA and private sector lenders to provide financing to small businesses.

Typically, 504 projects include:

• Loans secured from a private sector lender with a senior lien covering up to 50 percent of the project cost

• Loans secured from a CDC (backed by a 100 percent SBA-guaranteed debenture with a junior lien covering up to 40 percent of the total cost)

• Contributions of at least 10% equity from the borrower

How Funds May Be Used

504 loans can be used for:

• Purchasing land, including existing buildings

• Purchasing improvements, including grading, street improvements, utilities, parking lots, and landscaping

• Construction of new facilities or modernizing, renovating, or converting existing facilities

• Purchasing long-term machinery and equipment

504 loans cannot be used for:

• Working capital or inventory

• Consolidating, repaying, or refinancing debt

• Speculating or investing in rental real estate


To be eligible for a CDC/504 loan, the business must be operated for profit and must fall within the size standards set by the SBA.  For purposes of a CDC/504 loan, the SBA defines the business as small if it does not have a tangible net worth less than $15 million and an average net income less than $5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. Check this list of eligible and ineligible types of businesses to see if your company qualifies.

Loan Amounts, Interest Rates and Fees

Loan Amounts: Maximum loan amounts are determined by how funds will be used based on which goal they support from the list below:

Job Creation -- The maximum SBA debenture is $5 million for meeting the job creation criteria or a community development goal. Generally, your business must create or retain one job for every $65,000 provided by the SBA, except for small manufacturers, which have a $100,000 job creation or retention goal (see below).

Public Policy -- The maximum SBA debenture is $5 million or $5.5 million for small manufacturing businesses or businesses meeting the public policy goals of energy reduction or alternative fuels. Examples of public policy goals include:

○ Business district revitalization

○ Expansion of exports

○ Expansion of minority business development

○ Rural development

○ Increasing productivity and competitiveness

○ Restructuring because of federally mandated standards or policies

○ Changes necessitated by federal budget cutbacks

○ Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)

○ Expansion of small business concerns owned and controlled by women

Small Manufacturing-- The maximum debenture for small manufacturers is $4 million (Note that the $5.5 million loan is only if you meet one of the public policy goals). A small manufacturer is defined as a company that has its primary business classified in sector 31, 32 or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States. To qualify for a $4 million 504 loan, your business must meet the definition of a small manufacturer and accomplish one of the following:

○ Create or retain at least one job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the Small Business Investment Act (SBI Act)]

○ Improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act]

Interest Rates and Fees:  Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan.

Collateral:  Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

For More Information

There are about 270 CDCs nationwide, each covering a specific geographic area. If you are interested in applying for a 504 loan, contact the CDC nearest you. You can get a listing from your local SBA District Office.