Q: A business associate told me about a new government-guaranteed loan program available with a fixed rate, and that it was separate from the SBA. Are you aware of a such a program?
A: I wasn't aware of any new government-guaranteed lending programs, but to make sure, I made a few phone calls and checked the SBA Web site (www.sba.gov). As I suspected, I found nothing; however, I think your friend is referring to the lesser-known SBA 504 program.
To learn more about this program, I met with Diane Roehrig, president of Birmingham, Alabama-based Alacom Finance. Diane runs one of the most active 504 Certified Development Companies (CDCs) in the country. The program has been around since the early '80s and is primarily designed to facilitate the growth of small businesses by pro-viding government-guaranteed long-term, fixed-rate financing on assets like land and buildings. With the government involved, there is, of course, a dual goal here. The 504 program helps small businesses, which in turn generate revenue for their communities in the form of new jobs.
CDCs are regional economic development organizations licensed by the SBA to make loans to small businesses through the issuance of bonds. In other words, the government does not actually make the loan but guarantees bonds issued by the CDC to fund the loan. Each CDC has a territory covering one or more counties within a given state.
Here's an example of how it works. Let's say you want to buy a building for $500,000. Your bank will consider a loan of $250,000, or 50 percent. CDCs can issue government- guaranteed bonds and offer subordinate financing of $200,000, or 40 percent. Some rates from mortgage lenders are fixed but most are floating. The advantages of 504 loans are that the rates and terms are fixed for 10 to 20 years, and you're only required to make a nominal upfront capital injection of 10 percent of the total loan amount.
For more information or to find the CDCs in your area, click on the local CDC portion of the SBA's Web page. The 504 program will be new to some borrowers simply because it's not as well-known as its big sister, the SBA 7(a) program. However, it is an excellent opportunity for long-term, fixed-rate financing, and Congress recently passed a bill (H.R. 2614) increasing the limit on 504 loans to between $1 million and $1.3 million, depending on qualifications. I have found most CDC loan officers both knowledgeable and creative lenders, and they can put you on the path to helping both yourself and your community.
Doug Hood is a co-founder of Rainmaker Capital Corp., a capital acquisition consulting firm in Cartersville, Georgia. Co-founder Marilea S. Hood contributes to this column. Send questions or anecdotes via e-mail to firstname.lastname@example.org.