“Brick and mortar†financing
Another interesting program of the Small Business Administration (SBA) is called the CDC/504 loan program where “CDC†stands for the Certified Development Company. The Certified Development Company is a private nonprofit organization with the main purpose to contribute to the economic development of its community. The organization works with the SBA and privately-owned lending institutions (commercial banks and other financial organizations) to provide financing to small businesses. There are about 270 CDCs in the USA. Each CDC is responsible for a specific geographic area.
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The main features of the loan are the following:
a) it’s a long-tern loan;
b) the interest rate is fixed during the whole period;
c) there is a limited number of purposes: to acquire real estate, machinery or equipment for expansion or modernization;
d) in most cases the loan is secured with a senior lien (when provided by privately-owned lender) or with a junior lien (when a loan secured from a CDC and with a full SBA-guaranteed debenture);
e) the borrower has to invest himself not less then 10%.
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How much a company can get according to this program? It depends on the purposes and job creation factor:
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1. You will get up to $4,000,000 if you are qualified as a “Small Manufacturerâ€. A company is considered as small manufacture if its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS); and all of its production facilities are located in the United States.
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2. You will get up to $2,000,000 if your company’s activity meets at least one of the following public policy goals:
a) Business district revitalization (a strange goal as I think; different people will vary in opinion while explaining the sense of “revitalizationâ€; I can even say that every new company revitalize a business in a district… I don’t like that factor, as it’s not clear to my opinion);
b) Expansion of exports (this factor is a wonderful public goal; every student can explain why export is important for the economy of the district and for the whole country; but one doubt appears in my mind – how will new small business company prove that they are going to expand the export; such statements are based on the international marketing research but small business company – especially a new one – has no money, specialists and other resources to get such research even for one product and for one country… But still I like that factor because it’s economically correct);
c) Expansion of minority business development (Government tries to kill two birds with one stone – to help small business and minority… I like this because it can save some budget money!);
d) Rural development (my comments are the same as to the previous factor);
e) Increasing productivity and competitiveness (oh… one more factor that would be very difficult to prove; especially competitiveness; certainly if you buy a new technology and modern equipment it WILL increase the productivity of the company; but the costs will rise and so on… I’m not sure about this factor);
f) Restructuring because of federally mandated standards or policies (it’s clear and I support this);
g) Changes necessitated by federal budget cutbacks (I like this; when new business creates new jobs in the region or solve some urgent economic or social problems it worth of receiving some support from the Government);
h) Expansion of small business concerns owned and controlled by veterans, especially service-disabled veterans (it’s easy to prove and it’s very noble goal; such people need to know that they can do something for the society, not only society for them; they have a special need to be useful; I really support that goal)
i) Expansion of small business concerns owned and controlled by women (as a woman myself I like this goal… but feminists can say that the Government offend women by this goal: why do they say that women need more help than men…)
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3. You will get up to $1,500,000 if your project meets the job creation criteria or a community development goal. Generally, your business must create or retain one job for every $50,000 provided by the SBA.