Acronyms can be tricky. From “LOL” to “BRB,” in today’s text-centric communication paradigm, there are far too many three-letter acronyms we take for granted. But even before our language had been mass-reduced to three- or four-letter symbols, there was still an abundance of acronyms. For instance, in the U.S., “CDC” is generally associated to be the shorthand for the Centers for Disease Control and Prevention, which as our nation’s health protection agency, works to keep people alive and healthy.
But there’s another brand of CDC that helps our country in a different and unique way. Certified Development Companies (yes, CDCs) help small businesses find access to capital with lending options like the 504 Loan Program and are key players in the economic development and job creation throughout the country.
“The 504 Program is an economic development program administered through the Small Business Administration (SBA) that supports small-business growth and helps communities through business expansion and job creation,” explained Scott Davis, CEO of one of Utah’s largest CDCs, Mountain West Small Business Finance. Davis knows a thing or two about the program. He was the first administrator of the program when it was introduced in Utah more than 35 years ago.
The 504 Loan Program provides long-term, fixed rate, secondary mortgage financing for acquisition/renovation of capital assets, including land, buildings and equipment.
“But to get past the finance-speak,” said Davis, “if you’re a small business and you want to expand or get financing to purchase land, buildings or some equipment, we’ve got a way that makes it easier on the small-business owner and less risky for the banks.”
Davis said that most borrowers are required to come up with an initial down payment (i.e., “injection”) of just 10 percent — which allows businesses to conserve valuable operating capital. A private-sector lender (think: bank or credit union) finances approximately 50 percent of the project cost and the CDC finances up to 40 percent of the project cost.
“For so many small-business owners, a project with a fixed rate for 25 years makes much more sense than what the banks alone can offer,” explained John D. Evans, president of Mountain West Small Business Finance, noting that 504s provide more than just capital. “The 504 is a program that is meant to contribute to economic development, job creation and aligns with a community’s public policy goals.”
Mike Oliver, business development officer and underwriter for Mountain West Small Business Finance who also worked for Utah CDC, another certified development company in Utah, noted that wherever you go, all certified development companies adhere to the same public policy goals:
• Business district rRevitalization.
• Expansion of exports.
• Expansion of minority business development.
• Rural development.
• Enhanced economic competition.
• Restructuring because of federally mandated standards or policies.
• Changes necessitated by federal budget cutbacks.
• Expansion of small-business concerns owned and controlled by women.
• Expansion of small-business concerns owned and controlled by veterans.
“If they’re doing it right, CDCs will be looking at how they can help existing businesses grow and expand their operations,” Oliver explained. “When a business has sound financial or management skills, we can play a role in employee retention, recruitment and even the creation of new businesses and opportunities. It’s about helping businesses succeed and we do that by finding the right fit for their needs. Ultimately, whether that collaboration is with a CDC and a bank or a credit union is all part of the process.”
Evans said that typically, businesses that receive 504 loans are small — defined as having a net worth under $15 million — and a net profit after taxes of under $5 million. At the same time, they are extraordinarily diverse with most types of businesses represented — from manufacturing, retail, service or wholesale outfits. Most types of for-profit business are represented.
Lindsay Boulter is the marketing manager for Mountain West Small Business Finance.