What is a Certified Development Company?: The United States Congress created the Section 504 Certified Development Company Loan Program in 1980 by amending Title V of the Small Business Investment Act of 1958. SBA 504 loans are available for fixed asset purchases only. The financing legally is passed to the small business concern through a conduit known as a Certified Development Company (CDC). New Ventures CDC is a SBA Certified Development Company.
What are the functions and advantages of a
Certified Development Company and SBA 504 Financing?: New Ventures CDC helps promote and assist the growth and development of small businesses. The program offers subordinated mortgage financing to help expand eligible small commercial and industrial business concerns. The program combines the incentives of long term (10 or 20 years), low down payments and reasonably priced financing (near long term U.S. Treasury Bond rates).
How much can the CDC or SBA 504 participation be?: NVCDC’s 40% participation is normally no more than $1.5 million unless the project meets one of the Agency’s public goals. If a business meets one of the goals outline below then the 40% participation can not exceed $2.0 million. If the firm is involved in manufacturing then the 40% cannot exceed $4.0 million.
Advantages of SBA 504 for the Small Business:
1. The 504 provides longer term and attractive rate financing which matches the maturity of a loan to the useful life of the assets acquired with the loan.
2. The 504 provides lower down payment financing which enables the small business to keep its working capital investment in receivables and inventory where it earns a profit.
3. The 504 financing can reduce project risk. With debt service better matched to cash flow and with existing working capital invested into profit making receivables and inventory, the credit risk to the lender may be reduced. The net cost is generally lower than conventional financing.
Because 504 financing may be subordinated, lenders collateral risk is also reduced with reduced credit and collateral risk, a lender is more likely to participate and the small business is able to realize it's full growth potential.
Who is eligible and what can be financed using the SBA 504?: The borrower must be an owner user and must be located in the State of Nevada with a business net worth of not more than $7.5 million and average net income of not more than $2.5 million over the last two years.
Fees: The SBA imposes no restrictions on the first mortgage lender's fees other than requiring the fees to be "legal" and reasonable.
New Ventures CDC may receive two fees for participating in a project?
• One-time Processing Fee on the debenture amount
• Annual Servicing Fee on the declining loan balance.
• The SBA Central Fiscal Agent will collect these fees from the small business.
* One-time Funding Fee
* One-time Underwriting Fee
* Annual Servicing Fee on the declining loan balance.
SBA 7A loans: New Ventures CDC will also prepare packages for SBA 7A loans as companion financing to the SBA 504 loans, or separately for working capital, inventory, or equipment purchases.