The Small Business Administration created the 504 Loan Program to improve our economy and enhance job creation. To ensure that lenders are financing projects for borrowers who plan to create jobs, the SBA included a job requirement. This requirement stipulates that one job needs to be created per “X” amount borrowed with a 504 loan. However, it is important not to let that stipulation discourage you from applying for an SBA loan, as there are several options for meeting that requirement.
In fact, if your Certified Development Company (CDC) is a high-volume lender, they may be able to meet the requirement with their overall job creation statistics, freeing you to qualify for the loan by meeting other policies and goals as substitutes.
The SBA 504 Job Creation Requirement
The 504 loan program provides business owners fixed-rate, long-term financing for the expansion and security of their businesses. It also has an extensive list of public policy and community development goals. However, job creation is not on the list of policies and goals. Rather, it is incorporated separately as one of the main elements of the program.
The requirement is that one job be created for every $65,000 of SBA funds received for loans up to $5 million. Small manufacturers need to create one job per $100,000 for loans up to $5.5 million. These jobs are expected to be created within two years of receiving SBA funds. Job retention can be sufficient grounds for funding if it can be proven that the jobs will be eliminated without the funds.
But what if your project won’t meet the job creation requirement? You can still be eligible for a 504 loan! If you are working with a Certified Development Company (CDC) that is a high-volume lender, the total number of jobs created by their current clients might be sufficient to meet everyone’s requirements. That is, if another borrower is creating more jobs than the requirement demands, those extra jobs can be credited to you.
If that is the case, you will be able to qualify for your loan by meeting another goal. There is a quite comprehensive list of community development goals and public policies that will also qualify you. Your CDC will be able to determine what policy goal applies best to your company. Even if you don’t think you can meet at least one of these goals, don’t rule yourself out. Your CDC knows the program in and out and can figure out a way to make it work for your business.
504 Loan Program Policies and Goals
Slight variations in this list can be found. The most complete list seems to be the one in the Code of Federal Regulations. It lists:
- Community Development goals:
- Improving, diversifying or stabilizing the economy of the locality
- Stimulating other business development
- Bringing new income into the community
- Assisting manufacturing firms, or
- Assisting businesses in Labor Surplus Areas
- Public Policy goals:
- Revitalizing a business district of a community with a written revitalization or redevelopment plan
- Expansion of exports
- Expansion of small businesses owned and controlled by women
- Expansion of small businesses owned and controlled by veterans
- Expansion of minority enterprise development
- Aiding rural development
- Increasing productivity and competitiveness (retooling, robotics, modernization, competition with imports)
- Modernizing or upgrading facilities to meet health, safety and environmental requirements
- Assisting businesses in or moving to areas affected by federal budget reductions, including base closings, either because of the loss of federal contracts or the reduction in revenues in the area due to a decreased federal presence, or
- Reduction of rates of unemployment in Labor Surplus Areas
The other requirement is that your CDC show an average of one job created for every $65,000 loaned throughout its portfolio. A high-volume lender like TMC Financing will do that, effectively taking the pressure to qualify yourself off your plate.
The Green Energy Program Alternative
Another alternative to the job creation requirement is to participate in the SBA Green Energy Program. This means reducing your energy consumption by 10% or generating renewable energy or fuels to make up 10% of energy use. You can also:
- Purchase or construct a building that consumes 10% less energy than your current location
- Purchase the building you now lease and make upgrades to consume 10% less energy
- Purchase or construct a building that produces 10% of the energy it consumes or produces fuel to reduce fossil fuel consumption, using equipment financed through the loan
Besides being an alternative to the job creation requirement, the Green Energy Program has incentives of its own. By participating in the program, you become eligible for more loans and, your SBA loan maximum is raised from $5 million to $5.5 million.
As you can see, there is a great deal of flexibility built into the 504 loan program. If you have questions about eligibility, your best course of action is to contact your regional CDC and ask about your options. You will find experts ready to answer your questions and work with you to find the best possible solutions to your issues.
TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. If you are thinking about a 504 loan, or would like to find out more about it, contact an expert at TMC today.