SBA Guaranteed CDC Loans

This SBA Loan video covers the main terms, conditions and fees related to the SBA guaranteed CDC loan.  CDC stands for Certified Development Company. CDCs are non-profit organizations certified by the SBA to provide financing to small businesses through the SBA’s 504 loan program. A CDC partners with your bank throughout the SBA loan process. For easy reference, see the full transcript below the video.

Now that we’ve gone over the terms, conditions and fees related to the bank loan, let’s move on to the SBA guaranteed CDC loan.

Fully amortizing (10 or 20 yr.).  Unlike the bank loan, the term of the SBA guaranteed CDC loan will always match the amortization period and the interest rate will be locked for the length of the loan.  Once closed, there is no need to renew after 10 years or be concerned with the interest rate adjusting during the life of the loan.  For real estate projects, the term and amortization period is 20 years.  For machinery and equipment, the period is 10 years. 

Fees. There are a few different fees associated with the CDC loan that go to both the SBA and CDC.  The amounts can vary somewhat but generally amount to approximately 2.0-3.0% of the CDC loan.  These fees, along with any other closing costs, get rolled into the total project to be financed.

Personal guaranty. In terms of personal guarantee requirements, the SBA small business loan program will require personal guarantees from anyone owning 20% or more owner of the company. Though there may be some rare exceptions, this requirement is, for the most part, non-negotiable.

Covenants. As with the bank loan, there may be certain loan covenants required by the SBA or CDC.  This will vary but typically the CDC will follow the bank’s lead in establishing covenants and will require for the CDC loan whatever covenants are required on the bank loan.

SBA 504 prepayment penalty. The SBA guaranteed CDC loan can be paid off early but must be paid off in its entirety (partial pre-payment is not allowed). In addition, the loan must be paid off at certain dates during the year (generally occurring every 6 months). A prepayment penalty based on a declining % of the interest rate on the CDC loan will be charged.

Appraisal.  A real estate appraisal will be required on real estate estimated to have a value exceeding $250,000 or if it is deemed necessary to underwrite the loan.  As long as the appraised value comes in at 90% or more of the estimated value, the CDC is free to close the loan.  If the appraised value comes in at less than 90% of the estimated value, the CDC loan must be either reduced or secured with additional collateral, or, the borrower’s equity contribution will need to be increased by an amount sufficient to cover the gap in value.

Max SBA / CDC loan is $5MM – Finally, while there is no maximum project size, the maximum SBA guaranteed CDC loan is $5MM.  Small manufacturers or specific types of energy projects may qualify for a maximum CDC loan of $5.5MM.

I’ve attempted to cover the main terms, conditions and fees related to the SBA guaranteed CDC loan.  This is not intended to be a complete, exhaustive list.  Other terms, conditions and fees may apply, and it’s best to obtain a complete list from the Certified Development Company you’re going to work with.

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