In Business / July 2006
Loan Rangers
The biggest challenge entrepreneurs sometimes face is taking their small business to the next level. Despite big plans, big ideas, and big financing needs they are often unable to qualify for traditional financing which can require a down payment of 30 percent or more.
A U.S. Small Business Administration Certified Development Company (504) Loan Program may be the answer. It provides small business owners access to the same low-cost, fixed-rate, long-term financing large businesses have through bond markets.
The SBA’s 504 Loan Program provides a vehicle to help healthy, expanding small businesses grow. The loans can be used for acquiring fixed assets, like land, buildings, machinery and equipment, or for building, modernizing, renovating or restoring facilities. Loan proceeds cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing existing debt. The SBA’s loan guaranty programs can be used for the business related items.
Some advantages of a 504 loan include a generally lower down payment, below-market, fixed-rate financing, which avoids the uncertainties of future market fluctuations and a longer repayment term that brings debt service in line with the cash flow generated by the asset. Maturities of ten and twenty years are available.
CDCs help small businesses secure financing for fixed-asset projects by assembling, analyzing, and making recommendations on loan packages, submitting their analyses and recommendations to the SBA for approval, and closing and servicing the loans. The SBA works closely with CDCs to administer the 504 loan.
They are nonprofit organizations, often sponsored by state and local governments, established to promote economic development in their communities. They operate under the jurisdiction of a board that includes local government officials, private-sector lending institutions, and business and community organizations.
Typically, a 504 loan project includes a loan secured with a senior lien from a private-sector lender (covering a percentage of the total cost), a loan secured with a junior lien from a CDC (a 100 percent SBA-guaranteed debenture), covering up to 40 percent of the total cost; and a contribution of at least 10 percent equity from the borrower.
The small business owner’s minimum equity injection of 10 percent is increased by 5 percent if the business is new or if the financing is for a limited-use asset. If both factors apply, the combined increase is 10 percent.
A CDC-financed project can be any size, but the SBA-backed portion is limited to 40 percent of a project or $1.5 million, whichever is less. Typical projects range in size from $500,000 to $1.5 million.
Goals for the program include business district revitalization, expansion of exports, expansion of minority business development, rural development, enhanced economic competition and the expansion of small business concerns)
To be eligible for a 504 loan, a business must be a for-profit corporation, limited liability company, partnership or proprietorship with a net worth of $7 million or less, and fall within the size standards set by the SBA. Average net profits after taxes cannot exceed $2.5 million per year for the previous two years.
Three Certified Development Companies operate in West Virginia, the WVCDC in Charleston, the Regional Economic Development Partnership (RED) in Wheeling and the recently added, Business Finance Group, Inc. in Fairfax, VA which serves the Eastern panhandle. The WVCDC and RED are approved by the SBA to assist businesses statewide.
For more information, contact David Manley, (304) 623-5631, ext. 231 ot david.manley@sba.gov ot visit www.sba.gov/financing/sbaloan/cdc50
Copyright © 2001-2009 A Woman's View. All rights reserved.
Top • Home • Subscribe • Advertise • Submit • Distribution • Contact
Support Our Advertisers • Organization Resources • Women Owned Business
Organization Resource List • Women Owned Businesses • Support Our Advertisers
Maintained by TEABROOKE
Website Design | SEO | Social Media Consulting
Related Sites | XMLSiteMap | Web Portal
Landing Zone SEO - Website | Search | Usability | Results | Goodness
Send an Email About This Article