Our goal at Benchmark Commercial Lending is to provide access to commercial loans and leasing products for small businesses.
The second of the SBA loan programs is the CDC/504 loan program. If you need significant funds to purchase or renovate land, buildings, or equipment, the CDC/504 loan program could be your perfect fit.
The terms, qualifications, and application process for this program are more complex than the more general 7(a) loans. Multiple parties are involved with making 504/CDC loans, making for a more time-intensive process. Plus, there’s typically more at stake here since 504/CDC loans have no set maximum and can cover huge multi-million dollar projects.
As we mentioned, CDC/504 loans have a somewhat complex structure:
It is important to understand that if you pursue of CDC/504 loan for your business, you are effectively seeking two separate loans—the CDC portion of the loan which is subject to SBA guidelines, and the bank portion which is not.
The exact process and terms, particularly of the CDC portion of your loan, can vary widely based on your geographic area and your local certified development company’s specific goals.
Since multiple parties are involved with 504/CDC loans and high dollar amounts are at stake, it is no wonder that these loans accounted for about 17% of total SBA-backed funds offered in 2017 but just 7% of the total number of loans. Compared with the other primary types of SBA loans, this one fits for a more specialized subset of small business borrowers.
Include a CDC/504 loan among your potential options if you’re seeking a commercial real estate property for which you plan to occupy at least 51% of the space. You should also consider a CDC/504 loan if you are planning renovations to your business or need to purchase equipment.
As with the 7(a) loan program, you need excellent personal credit (at least 650) to qualify for the SBA 504/CDC loan program. There is also a public policy aspect to the eligibility standards. You need to create or retain at least one job for every $65,000 of funding that the CDC provides. You can also meet other public policy goals. We recommend checking with your local CDC to determine whether your business will meet these standards before pursuing a 504 loan application.
As we’ve mentioned, the CDC/504 loan is actually two separate loans, and that distinction extends to cost. Banks can charge their own interest rates on their portion of the loan, without any intrusion from the SBA. However, the SBA sets guidelines for the maximum interest rates on the CDC/504 loan. The CDC can only charged fixed interest rates. Those interest rates are currently around 5%. The repayment terms range between 10 to 25 years.
Provided that you meet the criteria for a CDC/504 loan, you’ll want to first connect with a CDC in your local community to begin the application process. In some cases, your local CDC will be the one to secure your business loan. In other cases, the CDC may work in partnership with another SBA-approved lender.
Remember that if a CDC/504 loan does not turn out to be the right fit for your business, the 7(a) loan program can also be used to purchase fixed assets and make upgrades. That might end up being a more accessible choice.
For more information on loan programs under the CDC/504 loan umbrella email ronr@bmclending.com to schedule a consultation.
