What Is A CDC/SBA 504 Loan?

This type of loan program provides SBA loans to businesses that are trying to purchase or build owner-occupied commercial real estate. This program pairs two lenders together to fund projects like a bank or traditional lender & a community development corporation (CDC). The bank usually lends up to 50% while the CDC lends up to 40% & the remaining 10% of the costs come from the borrower, usually in the form of a cash down payment.

CDC/SBA 504 Loans expect that the business occupies at least 51% of the commercial space. Being it’s a great opportunity to rent out 49% of the available units to tenants, this type of SBA loan is only designed for companies that actually expect to utilize the space themselves. So in order for you to be eligible, your business must meet the SBA’s minimum requirements like being a U.S. based business that’s operating for-profit.

CDC/SBA 504 Loans breakdown

Interest Rates3.63% to 3.91%
Loan AmountsUp to $14-20 million
Repayment Terms10 or 20 years
Minimum Requirements680 credit score, 10% down payment, meet job creation or public policy goals, real estate must be at least 51% owner-occupied
Use of Loan Proceedsowner-occupied commercial real estate purchase, construction, or renovation, purchase of other fixed assets

CDC/SBA 504 Loan Interest Rates & Terms

Since there are two loans involved in the SBA 504 loan process, they will both have different rates, terms, fees & limits. Usually, you’ll pay about 4%-6% in interest throughout the entire loan with repayment terms up to 25 years.  

The CDC Section of the SBA Loan 

The CDC aspect of the loan can cover around 40% of the total project expense, and on the flip side, the SBA sets limits on the interest rates, terms, & fees given by the CDC. The loan terms must be within 10-20 years with interest rates at around less than 6%.

The rates as of 09/01/2019 are: 

  • Current 10-year CDC loans: Approximately 3.62%, fixed
  • Current 20-year CDC loans: Approximately 3.90%, fixed

An interest rate for a 10-year term loan is measured by adding 0.38% to the five-year U.S. Treasury rate, and the 20-year term is measured by adding 0.48% to the 10-year Treasury rate. So as far as the interest rate, there are also other ongoing fees.

CDC/SBA 504 Loan Requirements

The loan requirements for this type of loan are as follows: 

  • Minimum credit sore must be between 680 – 700
  • Must have a down payment of at least 10% of the cost of the project 

Furthermore, you’ll need to show that you were unable to receive credit somewhere else & that you were not engaged in rental real estate investments, and be able to meet the following:

  • Business net worth has to have a tangible worth of no more than $15 million
  • Being able to make payments on the loan on time from the estimated operating cash flow of the business
  • The building occupancy must be at least 51% owner-occupied

So if you’re currently searching for commercial real estate & will be able to occupy at least 51% of the space, then this would be the best option for you. For more info on SBA loans go to Uplyft Capital and we have tons of info on this topic.