How Can You Utilize a Certified Development Company (CDC) like BFC?

Certified Development Companies (CDCs) help business owners access financing for their commercial real estate through SBA 504 loans. CDCs enhance community economic development, accelerate small businesses’ expansion, and enable local communities to flourish.

What Does a Certified Development Company (CDC) Do?

Certified Development Companies (CDCs) are nonprofit organizations that collaborate with the Small Business Association (SBA) and third-party creditors to enhance economic growth. The purpose of these organizations is to work with top lenders to finance small businesses in the country. 

CDCs were created to help businesses finance their real estate constructions as well as other large projects. Today, CDCs help business owners acquire real estate. CDCs can also help businesses expand by offering loans to purchase new fixed asset equipment and upgrade real estate property.

What is an SBA 504 Property Loan?

The Small Business Administration (SBA) offers CDC/504 loans (also called SBA 504 loans) that are only available to small business owners through a CDC. These SBA 504 loans are beneficial for both buyers and sellers of commercial real estate because they offer financing up to $5.5 million, have up to 25 year maturity terms, a fixed-rate, and they are funded by the government for up to 40% of the loan.

How can an SBA 504 Loan Help Commercial Real Estate Developers?

Certified Development Companies, like BFC (Business Finance Capital), are the only institutions that can qualify small business owners for the SBA 504 loan. At BFC, we work with borrowers and walk them through all the loan details and ensure that the paperwork is filled out correctly and understood by the borrower.

After we review the borrower’s financials, we issue them a pre-qualification letter signifying that the CDC has reviewed their financials.

The following are some specific benefits of working with Certified Development Companies (CDCs) to acquire an SBA 504 loan.

Benefits of the SBA 504 Loan

SBA backing helps encourage banks to lend to small business owners with preferable rates. The SBA 504 loan program enables business owners to access fixed-rate, long-term, below-market loans funded by the government.

These loans have strict rules regarding what they can and cannot be used for. The 504 loan can be used to purchase existing commercial buildings and land, construct facilities, and renovate existing facilities. They cannot be used for working capital, inventory, or consolidating debt.

The primary benefit of the SBA 504 loan for small business owners is in the way the loan is financed. In the 10-40-50 structure, 10% of the loan comes from the borrower, 40% of the loan is through the CDC and is SBA-guaranteed (backed by the government), and the remaining 50% is through a 3rd party (typically a bank).

The primary benefit for real estate developers is that once the borrower is fully approved by SBA, the seller should not have any issues with receiving full payment upon closing as the loans are funded by a 3rd party at closing. On a straight purchase, SBA funding takes place typically two to three months after escrow closing, and has a fixed rate. Here are some other benefits for borrowers:

  • You can use 51% of an existing commercial structure as an owner and then lease the remaining 49%. This option can enable you to boost your cash flow.
  • These loans are funded by the government and a third party lender, meaning that the risk is highly minimized.
  • In 2018, the government introduced a twenty-five-year fixed-term financing option for 504 loans. This was in addition to the ten-year and twenty-year options, enabling small business owners to enjoy additional cash flow and minimized monthly payments.
  • If you are a real estate investor or eyeing a multi-purpose building, you only need 10% to start. When this happens, you can maneuver during times of crisis because your working capital is protected.

How Can Business Finance Capital Help?

Business Finance Capital (BFC) can help secure funding for your business. BFC is a Certified Development Company (CDC) that administers several small business loans that have been integral in growing the California economy. BFC creates opportunities for small business owners to access reasonably priced commercial real estate funding.

If you are a Commercial Real Estate (CRE) Developer, you can partner with us. With our knowledge and expertise, we can help you convert prospective business leads into deals. Here’s how:

  • We support CRE developers by providing the right marketing tools to secure mortgage loans for interested buyers. If you are a business owner looking to invest in commercial real estate, the SBA loan is an ideal option for you. 
    • Although these loans cannot be used for apartment buildings, you can talk to us if you want to invest in a commercial, owner-occupied property such as office buildings, daycares, retail buildings, and hotels.
  • We help buyers structure their loans through our loan program to increase their chances of approval. This gives them the purchasing power required to buy your buildings, pre-, and post-construction.
    • Loan structuring has two primary benefits: risk awareness and risk mitigation. When the lender is aware of the risks, they can price a loan based on the borrower’s capability, which benefits both parties.

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