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 FY2011, the SBA approved 7,983 504/CDC loans amounting to about $4.8 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. Congress authorized several changes to the 504/CDC program during the 111th Congress in an effort to increase the number, and amount, of 504/CDC loans. For example, P.L. 111-240, the Small Business Jobs Act of 2010, increased the 504/CDC program’s loan guaranty limits from $1.5 million to $5 million for “regular” borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers. It also temporarily expanded the use of the program to refinance existing debt, created an alternative 504/CDC size standard to increase the number of businesses eligible for assistance, and provided $510 million to extend through December 31, 2010, temporary fee subsidies for the 504/CDC and 7(a) loan guaranty programs and a temporary increase in the 7(a) program’s maximum loan guaranty percentage to 90%. The fee subsidies and 90% loan guaranty percentage were initially funded under P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), and had expired on May 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the 90% loan guaranty percentage through March 4, 2011, or until available funding was exhausted (which occurred on January 3, 2011).

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 congressional action taken during the 111th Congress to help small businesses gain greater access to capital, including the enactment of ARRA and P.L. 111-240, the Small Business Jobs Act of 2010. It also discusses H.R. 2950, the Small Business Administration 504 Loan Refinancing Extension Act of 2011, which would allow 504/CDC loans to be used to refinance projects not involving expansions for an additional year beyond the two years from the date of enactment authorized by the Small Business Jobs Act of 2010; and S. 1828, a bill to increase small business lending, and for other purposes, which would reinstate for a year following the date of its enactment the fee subsidies and 90% loan guaranty percentage for the 7(a) program which were originally funded by ARRA.

The report also examines issues raised concerning the SBA’s administration of the program, including the oversight of 504/CDC lenders.


Date of Report: November 9, 2011
Number of Pages: 32
Order Number: R41184
Price: $29.95

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