If you are familiar with SBA 504 small business loans, you know that they offer many benefits and were created to help small businesses secure financing. But you may not know that in order to apply for the loan, the first step is finding an approved Certified Development Company.
What is a Certified Development Company?
According to the U.S. Small Business Administration, “A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development.”
You can locate a CDC in your area by consulting a list of companies available on the SBA website and searchable by zip code. A CDC is eligible to offer loans in the state it was chartered. 504 Capital Corporation, for instance, is a CDC nonprofit organization founded to promote financial and industrial growth throughout Virginia, D.C., Maryland, and North Carolina. We are certified by the SBA to provide permanent financing with SBA 504 loans.
Years ago, development companies were called Small Business Investment Companies (SBICs). Like CDCs, they were independent of the SBA but licensed by it, and they provided both debt and equity financing with the help of underwriting. However, as the U.S. economy and the country’s social needs have evolved, CDCs were developed to help more established businesses (a segment not served by SBICs) that were ready to buy their own properties or expand with renovations or equipment.
How Do You Become A Certified Development Company?
To receive CDC certification, you must apply through the SBA and disclose a plan of operation, including operational requirements, budget, and more official criteria.
If approved, a licensed CDC like 504 Capital Corporation can help connect you with an experienced lending officer. We will assist you in determining if you are eligible for the loan and how you can put it to good use to ensure your business is prosperous far into the future.
A project financed through 504 Capital—purchasing land, property, or equipment or building or renovating facilities—has three sources of funding. A commercial, third-party lender holds the first mortgage position and typically offers up to 50 percent of the project cost. The SBA 504 loan-backed portion from a CDC will act as a second mortgage, financing up to 40 percent of eligible project costs. The remaining 10 percent (an equity investment) will be your small business owner contribution.
The benefits the SBA 504 loan include a low down payments (10% is all you need to get started), long-term financing for up to 90% of project costs, and generous term lengths with historically low interest rates.