Small Business Administration 504/CDC Loan Guaranty Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers programs to support small businesses, including several loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 504 Certified Development Company (504/CDC) loan guaranty program is administered through non-profit Certified Development Companies (CDC). It provides long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing. It is named from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699, as amended), which authorized the program. In FY2009, the SBA funded 6,293 504/CDC loans amounting to about $3.8 billion. 

Congressional interest in the 504/CDC program has increased in recent years because of increased concern that small businesses might be prevented from accessing sufficient capital to assist in the economic recovery. Some Members have proposed to amend the 504/CDC program in an effort to increase the number, and amount, of 504/CDC loans. These proposals include increasing the program's current loan guaranty limit of $2 million for regular projects and $4 million for manufacturing projects; expanding the eligible uses for the loan proceeds; and continuing the subsidization of the program's third-party participation fee and CDC processing fee, which were initially enacted on a temporary basis under P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), and expired on May 31, 2010. 

This report opens with a discussion of the rationale provided for the 504/CDC program, the program's borrower and lender eligibility standards, program requirements, and program statistics, including loan volume, loss rates, use of the proceeds, borrower satisfaction, and borrower demographics. 

It then examines previous congressional action taken to enhance small business access to capital, including the temporary subsidization of 504/CDC program's third-party participation fee and CDC processing fee. It also examines issues raised concerning the SBA's administration of the program, including the oversight of 504/CDC lenders. 

The report concludes with an assessment of the Obama Administration's proposals and pending legislation, including H.R. 3854, the Small Business Financing and Investment Act of 2009, and S. 2869, the Small Business Job Creation and Access to Capital Act of 2009, which would authorize changes to the 504/CDC program that are designed to enhance small business access to capital, and H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, which would extend the temporary subsidization of 504/CDC program's third-party participation fee and CDC processing fee through December 31, 2010. .


Date of Report: June 1, 2010
Number of Pages: 27
Order Number: R41184
Price: $29.95

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