In order to encourage small business growth and community development, the Small Business Administration's (SBA) CDC/504 program helps to secure lending for economically stable businesses to purchase, remodel or refinance commercial real estate.
The program is sorely needed for some businesses. During the better credit markets of the 2000s, a common practice for businesses seeking commercial lending was to obtain short-term balloon mortgages. That custom is now putting some small businesses at risk, as the loans are coming due and refinancing is proving more difficult in the tough economic climate.
Fortunately, the SBA's CDC/504 loan program may offer a solution. A Certified Development Company (CDC) is a non-profit organization that works with the SBA and possibly other private sector lenders to provide financing for up to 50 percent of the cost of purchasing land and buildings, making improvements to existing commercial land and buildings, and purchasing long-term machinery.
In addition to limiting the help to 50 percent of the cost of the project, the CDC/504 program's maximum debenture varies according to the purpose of the loan:
- For a community development or jobs creation goal, the maximum loan amount is $1.5 million (a general rule is one job retained or hired for every $65,000 given under the program)
- For a public policy goal, such as revitalizing a commercial district or rural development, the maximum amount increases to $2.5 million
- Small manufacturers may obtain up to $4 million, although they too must meet certain job creation criteria
Because the program is specifically targeted towards helping small businesses, eligibility is limited to businesses with a net worth of $7.5 million or lower and an average net income below $2.5 million after taxes for the preceding two years. The company must also not be in real estate speculation or investment, so commercial property owners who rent space are ineligible.
If you own a small business, you should consult with an attorney experienced in commercial lending who can advise you on various SBA programs and work with private lenders.