Ultimate Guide to Small Business SBA Loans

504 CDC Loan Programs

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504 CDC Standard Loan Program
504 CDC Refinancing Loan Program
504 CDC Green Loan Program

504 CDC Standard Loan Program

Purpose of the Loan Program

The 504 CDC (Certified Development Company) Standard Loan Program is designed to provide long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. This program aims to support small businesses in acquiring real estate, constructing new facilities, or purchasing long-term machinery and equipment. By offering favorable terms and lower down payments compared to conventional loans, the 504 program helps small businesses preserve working capital and improve their cash flow while expanding their operations.

Eligibility Requirements

To qualify for a 504 CDC Standard Loan, businesses must meet the following criteria:

Be a for-profit business operating in the United States
Meet the SBA’s size standards for small businesses
Have a tangible net worth of less than $15 million
Have an average net income of less than $5 million after federal income taxes for the two years preceding the application
Demonstrate the ability to repay the loan from projected operating cash flow
Have management expertise and a feasible business plan
Meet job creation or retention requirements (typically one job per $75,000 of the SBA portion of the loan)
Use the funds for an approved purpose
Not be engaged in speculation or investment in rental real estate

Loan Amounts and Terms

504 CDC Standard Loans offer structured financing with favorable terms:

Maximum loan amount: Generally up to $5 million, but can go up to $5.5 million for manufacturing projects or energy-efficient projects
Typical structure:
- 50% from a private lender with a senior lien
- 40% from a CDC backed by a 100% SBA-guaranteed debenture
- 10% down payment from the borrower
Interest rates: Fixed rate on the CDC portion, tied to current market rates for 5-year and 10-year U.S. Treasury issues
Loan terms:
- 10 years for machinery and equipment
- 20 or 25 years for real estate and land
Fees: Various fees apply, including CDC processing fee, SBA guarantee fee, and funding fee

Permitted Uses of Funds

504 CDC Standard Loans can be used for a variety of fixed asset projects, including:

Purchasing existing buildings or land
Constructing new facilities
Renovating or modernizing existing facilities
Purchasing long-term machinery and equipment
Refinancing debt in connection with an expansion of the business through new or renovated facilities or equipment
Soft costs associated with these projects, such as architectural, engineering, or legal fees

It’s important to note that 504 CDC Standard Loans cannot be used for:

Working capital or inventory
Consolidating or repaying debt (except in cases of expansion)
Speculation or investment in rental real estate
Goodwill, business valuations, or stock purchases

The 504 CDC Standard Loan Program provides a valuable financing option for small businesses looking to invest in major fixed assets. By offering long-term, fixed-rate financing with lower down payments, this program enables small businesses to conserve working capital while expanding their operations. The program’s focus on job creation and retention also aligns with its broader goal of fostering economic development in communities across the United States. For businesses planning significant capital expenditures, the 504 CDC Standard Loan Program can be an attractive alternative to conventional commercial real estate or equipment loans.

504 CDC Refinancing Loan Program

Purpose of the Loan Program

The 504 CDC Refinancing Loan Program is an extension of the standard 504 program, designed to help small businesses refinance existing debt on major fixed assets and business expenses. This program aims to provide small businesses with the opportunity to refinance eligible fixed assets and lock in long-term, fixed interest rates, which can improve cash flow, facilitate business growth, and create or retain jobs. It offers a way for businesses to potentially lower their monthly payments, improve their cash flow, and reinvest in their operations.

Eligibility Requirements

To qualify for a 504 CDC Refinancing Loan, businesses must meet the following criteria:

Be a for-profit business operating in the United States
Meet the SBA’s size standards for small businesses
Have a tangible net worth of less than $15 million
Have an average net income of less than $5 million after federal income taxes for the two years preceding the application
Demonstrate that the debt to be refinanced was originally used to acquire an eligible fixed asset
Show that the existing debt has been current for at least 12 months prior to the application
Prove that the refinancing will provide a substantial benefit to the business (10% reduction in monthly payment or improvement in cash flow)
Have been in operation for at least 2 years prior to the application
Occupy at least 51% of the property being refinanced

Loan Amounts and Terms

504 CDC Refinancing Loans offer structured financing with favorable terms:

Maximum loan amount: Up to $5.5 million
Typical structure:
- 50% from a private lender with a senior lien
- 40% from a CDC backed by a 100% SBA-guaranteed debenture
- 10% equity from the borrower (can be increased based on specific circumstances)
Interest rates: Fixed rate on the CDC portion, tied to current market rates for 5-year and 10-year U.S. Treasury issues
Loan terms:
- 10 years for machinery and equipment
- 20 or 25 years for real estate
Fees: Similar to standard 504 loans, including CDC processing fee, SBA guarantee fee, and funding fee

Permitted Uses of Funds

504 CDC Refinancing Loans can be used for:

Refinancing existing indebtedness that was used to acquire, construct, or substantially improve an eligible fixed asset
Refinancing qualified debt and other business expenses (in some cases)
Financing eligible business expenses as part of the refinancing (up to 25% of the appraised value of the property)
Paying all out-of-pocket costs associated with the refinancing (e.g., appraisals, environmental studies, legal fees)

It’s important to note that 504 CDC Refinancing Loans cannot be used for:

Refinancing existing federal government loans, including other SBA loans
Financing a change of ownership
Refinancing short-term debt or balloon payments
Paying delinquent taxes

The 504 CDC Refinancing Loan Program provides a valuable opportunity for small businesses to improve their financial position by refinancing existing debt on eligible fixed assets. By offering long-term, fixed-rate financing, this program can help businesses reduce their monthly payments, improve cash flow, and free up capital for growth and job creation. This refinancing option can be particularly beneficial for businesses that have weathered economic challenges and are looking to strengthen their financial foundation for future growth.

504 CDC Green Loan Program

Purpose of the Loan Program

The 504 CDC Green Loan Program is a specialized offering within the SBA’s 504 loan program designed to encourage small businesses to invest in energy-efficient technologies and practices. This program aims to support environmentally friendly business initiatives while providing long-term, fixed-rate financing for major fixed assets. By offering enhanced benefits for green projects, the SBA incentivizes small businesses to reduce their environmental impact, lower energy costs, and contribute to sustainability efforts.

Eligibility Requirements

To qualify for a 504 CDC Green Loan, businesses must meet the following criteria:

Meet all standard 504 loan program eligibility requirements
Be a for-profit business operating in the United States
Meet the SBA’s size standards for small businesses
Have a tangible net worth of less than $15 million
Have an average net income of less than $5 million after federal income taxes for the two years preceding the application
Demonstrate the ability to repay the loan from projected operating cash flow
Commit to one of the following:
- Reduce energy consumption by at least 10%
- Generate renewable energy or renewable fuels
- Meet specific green building standards (e.g., LEED certification)

Loan Amounts and Terms

504 CDC Green Loans offer enhanced financing options:

Maximum loan amount: Up to $5.5 million per project, with the potential for multiple projects up to $16.5 million
Typical structure:
- 50% from a private lender with a senior lien
- 40% from a CDC backed by a 100% SBA-guaranteed debenture
- 10% down payment from the borrower (compared to 15% for some standard 504 loans)
Interest rates: Fixed rate on the CDC portion, typically lower than standard 504 loans
Loan terms:
- 10 years for machinery and equipment
- 20 or 25 years for real estate
Fees: Similar to standard 504 loans, but may have reduced fees in some cases

Permitted Uses of Funds

504 CDC Green Loans can be used for a variety of environmentally friendly projects, including:

Purchasing energy-efficient equipment or machinery
Installing renewable energy systems (e.g., solar panels, wind turbines)
Upgrading HVAC systems to more efficient models
Improving building insulation and envelope
Implementing water conservation measures
Constructing or renovating facilities to meet green building standards
Acquiring land for renewable energy projects
Refinancing existing debt related to eligible green projects
Soft costs associated with these projects, such as energy audits, engineering, and design fees

It’s important to note that 504 CDC Green Loans cannot be used for:

Working capital or inventory
Non-fixed assets
Projects that do not meet the program’s energy efficiency or renewable energy requirements
Speculative real estate investments

The 504 CDC Green Loan Program provides an attractive financing option for small businesses looking to invest in energy-efficient and environmentally friendly projects. By offering higher loan amounts, lower down payments, and potentially lower interest rates, this program encourages businesses to adopt sustainable practices. This not only helps reduce operating costs in the long run but also positions businesses as environmentally responsible entities. For companies looking to reduce their carbon footprint, lower energy expenses, or meet specific green building standards, the 504 CDC Green Loan Program can be an excellent financing solution that aligns with both business growth and sustainability goals.

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