CDC/504 SBA Loan Program

SBA/CDC 504 Loan Program

The CDC/504 loan program is the only SBA loan in which the SBA puts up a single penny.  Unlike other SBA loans, in which the SBA only provides a guarantee to the bank, in the CDC/504 program the SBA injects 40% of the Project cost into the loan.  Fifty (50%) percent comes from the bank and the remaining (10%) comes from the borrower.  So how does this program work?  Well, a little bit of history is in order.

SBA/CDC Origins

In 1977, the SBA created the Community Development Corporation (CDC) program as a test pilot to inject money into local areas.  The SBA qualifies a CDC as a private, nonprofit corporation set up to contribute to the economic development of its community.  In 1977, the SBA decided to start out with 25 private CDCs to pioneer local lending to areas that could benefit from stimulus of economic activity.  Eddie Evans of Landmark CDC based in La Habra, California was part of the beginning of the CDC program.  His company based in La Habra is one of the original 25, which currently number over 250.  He shared some thoughts regarding the CDC/504 program which are in this article.

Purpose of SBA/CDC: Job Creation via Small Businesses

The Primary criterion for the CDC/504 program is to create jobs with the Tax dollars invested in a local community small business.   Two key points: #1, the CDC/504 program is the only SBA loan in which tax dollars are used, all the other types of SBA loans use solely a bank’s money.  #2, the loan money that goes to a small business that will create new jobs with the capital.  When the program began in 1977, for every $35,000 in SBA money loaned out, the recipient borrower business had to hire one employee.  Now the amount per new hire is $65,000.  So for example, on a $1,000,000 project, the bank puts up $500,000 and the SBA injects $400,000, with the borrower down payment of $100,000.   So, for the $400,000 in SBA money, that means the borrower business has to have plans to hire at least 6 new employees ($400,000 divided by $65,000 is roughly 6).  Also, the loan has to be for a ‘small for profit business.’

Definition of a Small Business for the purpose of SBA/CDC 504 Loan Program

For the CDC/504 program the definition of a small business is a business with a tangible net worth of less than $7,500,000 and an average net income of less than $2,500,000 for each of the last two years.  So there you have it, if you are looking for loan to buy a building or other commercial real property, and you meet the eligibility criteria, contact your local CDC and see what they have to say.

Getting an SBA/CDC 504 loan

For assistance with selecting a bank to obtain financing, lines of credit or other business loans for your business contact our office.  You can reach our Client Care Manager Sonia Chhabra at  (888) 926-9193 or email cs@justelementary.com