The Small Business Administration's 504 Loan Program provides small companies in development areas with guarantees for loans for major fixed assets such as land and buildings for economic development. The purpose of 504 loans is to improve the economy of a locality or to assist businesses owned by women, minorities, veterans, rural businesses, and other designated types of businesses. The 504 loans are set up to work with Certified Development Companies - nonprofit corporations set up for community development. Generally the project assets are used as collateral.
The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings, through a Certified Development Company (CDC). A CDC is a nonprofit corporation set up to contribute to the economic development of its community. CDC's work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area.Typical 504 Loan
A typical 504 loan structure might look like this, according to the SBA:
Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.
Businesses which receive 504 loan funding must meet size limits for small businesses, as defined by the SBA.
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