A few minutes ago I met with a customer and a representative from a Certified Development Company (CDC). My customer is planning to expand his business in 2009 by moving from a leased space to a new building he plans to build on land he has owned since 2006. For various reasons the transaction needs to be funded through the SBA 504 program. My purpose in arranging the meeting was to make sure all three parties are starting off (and remain) on the same page.
CDC's are nonprofit organizations which exist for the purpose of funding and servicing SBA loans. Though it isn't quite fair to call CDC a "middleman", the analogy works. My customer was pleased to learn the following benefits to his particular plan which are understood to be part of President Obama's financial stimulus package:
- Borrowers are able to roll SOME refinancing of existing non-real estate business debt into a 504 loan. In the past, SBA 504 was only set up to fund real estate cost.
- The borrower is able to avoid paying the 1.50% CDC processing fee (now funded directly by SBA). This represents a savings of several thousand dollars on most transactions.
- Because the bank is also able to avoid paying the lender's portion of the CDC processing fee, the borrower avoids that cost as well, which is typically passed along in the form of closing costs.
Specific details on how these expected benefits are to be doled-out are expected to be available this coming Tuesday, March 10th.
A key element of SBA 504 loans has always been the requirement of quantifiable JOB CREATION. Given the rising unemployment figures across the USA, it would be hypocritical for me as a banker (and as a US citizen) not to applaud this particular portion of the stimulus package. Please help me get the word out.