What is CDC?

Certified Development Company(CDC) is Non for profit organization, Lending institution & Non Depository Bank who is ratified by Federal Agency(SBA) and created to assist small businesses with their financial needs. Currently, there are only 4 CDC’s servicing States of New Jersey.

Economic Benefits

• Stimulates private sector investment in long term fixed assets
• Create new jobs
• Increase and/ or stimulate local tax base

Advantages of a 504 Loan

• Equity Injection as low as 10%
• Fixed interest rate on 2nd mortgage loan (40%): 20 year fixed rate & 20 year amortization
• Long-Term Financing first mortgage loan (50%): more than 10 year term on 25 year amortization

NMTC Program

• The New Market Tax Credit program helps economically distressed communities attract private investment capital by providing investors with a Federal Tax Credit (39% Benefit for 7 yrs)
• NMTC program created or retained about 358,800 jobs and offered more favorable terms and conditions than the markets typically offers (3% 7 year fix 30 year amortization)
• Applicable Area Map
www.novoco.com/new_markets/resources/map2_popup.php

What are eligible project costs?

• Purchase & Improvement of land
• Construct Building
• Machinery & Equipment
• Refinance with Expansion (2:1)
• Soft Costs(appraisal, environmental, etc, points, fees, interests)

Ineligible use of proceeds

• Working Capital
• A/R financing
• Inventory acquisition
• Intangible Assets
• Investment Real Estate

Basic Structure for 504 loans

• 3rd party lender (Bank) – 50% with 1st mortgage lien position
• CDC – 40% with 2nd mortgage lien position
• Applicant – 10% (Cash or Land Equity)
• Reserved for established businesses and general purposes facilities
• Appraisal driven!!!

What If “New” Business?

• Less than two years old
• Borrower equity is 15%
• CDC financing is 35%
• Bank must stay at 50%

What if “Special Purpose” properties?

• Bowling alleys, marina, hotel/motel, theaters, convenience store, gas station
• Borrower equity is 15%
• CDC financing is 35%
• Bank must stay at 50%

What if “Double Whammy”?

(New and Special Purpose)
• Bank finances 50%
• CDC finances 30%
• Borrower contributes 20%

Bank limit of 50% applies:

• Only for “NEW” and “SPECIAL PURPOSE”
• Any other situation, BANK % can be reduced and CDC can stay at 40%
Bank – CDC – Borrower
45% – 40% – 15%
40% – 40% – 20%
37.5% – 37.5% – 25%

SBA 504 Project Sizes

• Minimum

The smallest debenture the CDC can issue is $25,000.
This means the lowest project size is about $120,000 (40% of $120,000 is $48,000 plus fees)

•Maximum
There is no MAXIMUM project Size!!

“Regular” Projects

• CDC can offer up to $5,000,000 as our share of project costs
• 1 job per $65,000 of CDC money lent based on “GROSS” debenture

Public Policy Projects

• Rural
• Woman owned
• Minority owned
• Veteran owned
• Federal cutbacks
• Export
•Modernization

Manufacturers

• NAICS categories 31,32 & 33
• Maximum gross debenture from CDC can be $5,500,000
• Job creation becomes 1 job per $100,000 of gross debenture

What do we need from Borrowers?

•We require the same financial documentation that the bank is requiring.
• Three years business and personal tax returns
• Interim financial statement
• Personal financial statement
• Business debt schedule
• We can assist the borrower in completing the SBA forms

Fees?

• 2.65% of the CDC portion of the transaction plus $2,500
• We build our fees into the 504 debenture and finance them over the 10 or 20 year term
• No major “OUT –OF POCKET” costs for borrower on CDC portion
• Usually a CDC takes $2,500 refundable deposit from applicants

Applicant must be eligible for 504 financing

• Can have a not-for-profit affiliate, but the loans must be made to a for-profit entity
• “TANGIBLE” net worth less than $15 MM and average annual net profits for past two years less than $5 MM

Occupancy

• For existing facilities, applicant must occupy at least 51% of the space and can lease 49%.
• For ground-up construction, applicant must occupy 60% of the space and can lease out 20% permanently. The business is required to occupy some of the remaining 20% within 3 years and all of the space within 10 years.

Eligible Down Payment

• Cash (HOME EQUITY LOAN OK)
• Land Equity
1) If owned less than 2 years – cost (require copy of HUD closing document at the time of
application)
2) If owned more than 2 years – appraisal value(require copy of HUD closing statement and
current bank- ordered appraisal at the time of application)

Prepayment

• 20 Year Loans: 100% of first year interest in year one declining by 10% per year over ten years.
• 10 Year Loans: 100% of first year interest in year one declining by 20% over five years.
• No partial prepayments are allowed.
•Typically less than 5/4/3/2/1 or yield maintenance

SBA 504 Comparison $1MM CRE

•SBA 504
Down payment $100,000
SBA Fees@2.7% of $400,000 = $10,800
TPL fee@1% of $500,000 =$5,000 (includes 0.5% to SBA)
Total Costs=$115,800

•SBA 7A
Down payment $100,000
SBA Fees@3.5% of $750,000 = $26,250
Total Costs=$126,250

•Conventional
Down payment $300,000
Fees@0.5% of $700,000=$3,500
Total Costs=$303,500

SBA 504 vs SBA 7a

SBA 504
• Conventional processing channels For bank
• Lower costs to clients for loans over $700m
• CRE/M&E generally serves as the only collateral for loan
• No maximum project size
• Can finance multiple projects through “Green Energy” initiatives
• Secondary market revenue

SBA 7a
• Bank controls process-dedicated Processing
• Lower costs for loan below $300m
• Can be used even if no collateral is available
• Lower minimum loan amounts
• Prepayment penalty 0-3 years
• Secondary market revenue