SBA 504

This program has a lower owner investment requirement, long payment terms (20 years), projected income is considered and not just historical cash flows, and collateral may be less critical in loan qualification decisions. In addition, up to 40% of the eligible project costs may be financed with a longer term, normally below-market, fixed-rate loan.

About the SBA 504

The Small Business Administration (SBA) 504 Certified Development Company (CDC) Loan Program was created in 1980 to promote small business expansion. The program provides long-term, low down payments, competitively priced capital for healthy, growing businesses that have a high probability of enhancing local employment. A CDC (typically a non-profit corporation) receives designation from the SBA to administer this economic development program.

The 504 Program is an under-utilized economic development program. It stimulates private sector investment, increases productivity, creates and retains jobs and increases local tax base. This program helps small businesses overcome the obstacles normally associated with traditional loan criteria. The SBA’s involvement spreads the lending risk and thereby recruits private sector lenders to participate in projects they wouldn’t otherwise be involved in.

The South Central Kansas Economic Development District, Inc. (SCKEDD) serves a 14-county region in South Central Kansas. The Wichita Metropolitan Area is the heart of the region that includes Butler, Chautauqua, Cowley, Elk, Greenwood, Harper, Harvey, Kingman, Marion, McPherson, Reno, Rice, Sedgwick and Sumner counties.

Typically, a 504 project includes:

  • A loan secured by a first lien from a private-sector lender that finances up to 50% of an eligible project’s cost.
  • A secured second lien from a CDC (backed by a 100% guaranteed debenture) that funds up to 40% of the project’s cost.
  • The small business is required to inject at least 10% of the eligible costs. New and limited purpose businesses may be required to inject additional equity up to a maximum of 20%.

Eligibility

To be eligible for the SBA 504, you must:

  • Be an operating business.
  • Be organized for profit.
  • Be located within the United States.
  • Be a small business according to SBA standards.
  • Meet an economic development objective of the program.
  • Have demonstrated the need for financing.
  • Not have credit available elsewhere.
  • Have passed the limited liquid resources test.

Projects Financed

Characteristics of projects that receive financing typically include:

  • Land acquisition.
  • Building acquisition and improvements.
  • New construction.
  • Machinery and equipment purchases.
  • Professional and interim loan fees.
  • One full-time job must be created or retained for each $50,000 invested. Exceptions: The project meets a public policy. The CDC overall 504 portfolio meets the “one job per $50,000 invested” threshold.

Loan Amount

  • An eligible entity may borrow up to 40% of the project’s costs, or a total SBA guaranteed portion of $1.5 million.
  • If the project meets a Public Policy Goal, the maximum guaranteed portion may increase to $2 million.
  • The minimum debenture/loan should be at least $25,000 (translates to a total project size of $62,500)

Small Manufacturers as defined by the SBA

  • The total SBA guaranteed portion cannot exceed $4 million.

Interest Rate and Repayment

  • Fixed rate indirectly based on prime and set when debentures are sold to the public.
  • Fully amortized 10 or 20 year loans.

Collateral

  • Generally, the project assets being financed are used as security. SBA 504 loans are secured by a second lien on project assets (Land, Building, Machinery and Equipment).
  • Participating private sector lenders are granted a first lien on project assets.
  • Personal guarantees and assignable key-person life insurance policies on the owners of the business are required.

Download the loan application here. Or fill out the application on-line at www.kacdc.com.

For More Information Contact:

Sandra Ring, Program Manager
Email: sandy@sckedd.org
316-262-7035
200 W. Douglas, Suite 710
Wichita, Kansas 67202