Small Business Administration 504/CDC Loan Guaranty Program

Changes from November 12, 2021 to March 4, 2022

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with ~~red strikethrough~~ and textual matter added in the later version is indicated with blue.

Small Business Administration 504/CDC Loan
~~November 12, 2021~~March 4, 2022
Guaranty Program
Robert Jay Dilger
The Small Business Administration (SBA) administers several programs to support small The Small Business Administration (SBA) administers several programs to support small
Senior Specialist in Senior Specialist in
businesses, including loan guaranty programs designed to encourage lenders to provide loans to businesses, including loan guaranty programs designed to encourage lenders to provide loans to
American National American National
small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” small businesses “that might not otherwise obtain financing on reasonable terms and conditions.”
Government Government
The SBA’s 504 Certified Development Company (504/CDC) loan guaranty program is The SBA’s 504 Certified Development Company (504/CDC) loan guaranty program is

administered through nonprofit Certified Development Companies (CDCs). It provides long-term administered through nonprofit Certified Development Companies (CDCs). It provides long-term
Anthony A. Cilluffo fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Of fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Of

Analyst in Public Finance the total project costs, a third-party lender must provide at least 50% of the financing, the CDC the total project costs, a third-party lender must provide at least 50% of the financing, the CDC
provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of
the financing. Its name is derived from Section 504 of the the financing. Its name is derived from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699,Small Business Investment Act of 1958 (P.L. 85-699, as amended), as amended),
which provides the most recent authorization for the SBA’s sale of 504/CDC debentures. In FY2021, the SBA approved which provides the most recent authorization for the SBA’s sale of 504/CDC debentures. In FY2021, the SBA approved
9,676 504/CDC loans totaling over $8.2 billion. 9,676 504/CDC loans totaling over $8.2 billion.
Congress has always shown a great interest in the SBA’s loan guarantee programs because of concerns that small businesses Congress has always shown a great interest in the SBA’s loan guarantee programs because of concerns that small businesses
might be prevented from accessing might be prevented from accessing ~~s ufficient~~sufficient capital to enable them to create and retain jobs. That interest has grown capital to enable them to create and retain jobs. That interest has grown
especially acute in the wake of the Coronavirus Disease 2019 (COVID-19)especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s adverse economic impact on the pandemic’s adverse economic impact on the
national economy. For example, national economy. For example,
 P.L. 116-136,  P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other
provisions, created the $349 billion (now $806.45 billion) Paycheck Protection Program (PPP), which provisions, created the $349 billion (now $806.45 billion) Paycheck Protection Program (PPP), which
provides low-interest, forgivable loans to small businesses adversely affected by the COVID-19 pandemic, provides low-interest, forgivable loans to small businesses adversely affected by the COVID-19 pandemic,
and appropriated $17 billion for six-month payment relief for existing 7(a), 504/CDC,and appropriated $17 billion for six-month payment relief for existing 7(a), 504/CDC, and Microloan and Microloan
borrowers. Loans in a regular servicing status (i.e., fully disbursed) up to six months after enactment (until borrowers. Loans in a regular servicing status (i.e., fully disbursed) up to six months after enactment (until
September 27, 2020)September 27, 2020) were also eligible to receive the six monthly payments of debt relief. were also eligible to receive the six monthly payments of debt relief.
 P.L. 116-260,  P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Division N, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Division N,
Title III of the Consolidated Appropriations Act, 2021), among other provisions, appropriated $3.5 billion Title III of the Consolidated Appropriations Act, 2021), among other provisions, appropriated $3.5 billion
to resume monthly payment relief for 7(a), 504/CDC, and to resume monthly payment relief for 7(a), 504/CDC, and ~~Microlo an~~Microloan borrowers, capped at $9,000 per borrowers, capped at $9,000 per
month per borrower. Payments are dependent on the availability of funds, when the loan was disbursed, the month per borrower. Payments are dependent on the availability of funds, when the loan was disbursed, the
type of loan received, and the business’s industry. The act also waived specified 7(a) and 504/CDC loan type of loan received, and the business’s industry. The act also waived specified 7(a) and 504/CDC loan
guarantee program fees in FY2021, modified 504/CDC refinancing regulations to expand borrower access guarantee program fees in FY2021, modified 504/CDC refinancing regulations to expand borrower access
to the refinancing program and create reciprocity for refinancing under the 7(a) and 504/CDC programs, to the refinancing program and create reciprocity for refinancing under the 7(a) and 504/CDC programs,
and temporarily authorized the SBA, through September 30, 2023, to establish a 504/CDC Express Loan and temporarily authorized the SBA, through September 30, 2023, to establish a 504/CDC Express Loan
program to expedite the approval of 504/CDC loans that do not exceed $500,000. program to expedite the approval of 504/CDC loans that do not exceed $500,000.
This report examines the rationale provided for the 504/CDC program; its borrower and lender eligibility standards; operating This report examines the rationale provided for the 504/CDC program; its borrower and lender eligibility standards; operating
requirements; and performance statistics, including loan volume, loss rates, proceeds usage, borrower satisfaction, and requirements; and performance statistics, including loan volume, loss rates, proceeds usage, borrower satisfaction, and
borrower demographics. borrower demographics.
It also examines congressional action taken to help small businesses gain greater access to capital, including enactment of It also examines congressional action taken to help small businesses gain greater access to capital, including enactment of
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA); P.L. 111-240,P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA); P.L. 111-240, the Small Business Jobs Act of the Small Business Jobs Act of
2010; P.L. 116-136; and P.L. 116-260. 2010; P.L. 116-136; and P.L. 116-260.
This report also discusses issues related to the SBA’s oversight of 504/CDC lenders This report also discusses issues related to the SBA’s oversight of 504/CDC lenders . .
Congressional Research Service Congressional Research Service

Small Business Administration 504/CDC Loan Guaranty Program

Small Business Administration Loan
Guaranty Programs
The The ~~Smal~~ Small Business Administration (SBA) administers several programs to support small Business Administration (SBA) administers several programs to support small
businesses, including loan guaranty programs designed to encourage lenders to provide loans to businesses, including loan guaranty programs designed to encourage lenders to provide loans to
~~smal~~ small businesses “that might not otherwise obtain financing on reasonable terms and conditions.”1 businesses “that might not otherwise obtain financing on reasonable terms and conditions.”1
~~Historical y~~Historically, one of the justifications presented for funding the SBA’s loan guaranty programs has , one of the justifications presented for funding the SBA’s loan guaranty programs has
been that been that ~~smal~~ small businesses can be at a disadvantage, compared with other businesses, when trying businesses can be at a disadvantage, compared with other businesses, when trying
to obtain access to sufficient capital and credit.2to obtain access to sufficient capital and credit.2
The SBA’s 504 Certified Development Company (504/CDC) loan guaranty program provides The SBA’s 504 Certified Development Company (504/CDC) loan guaranty program provides
long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and
machinery. Its name is derived from Section 504 of the machinery. Its name is derived from Section 504 of the ~~Smal~~ Small Business Investment Act of 1958 Business Investment Act of 1958
(P.L. 85-699, as amended), which provides the most recent authorization in the act concerning the (P.L. 85-699, as amended), which provides the most recent authorization in the act concerning the
SBA’s monthly sale of 20-year and 25-year 504/CDC debentures and bimonthly sale of 10-year SBA’s monthly sale of 20-year and 25-year 504/CDC debentures and bimonthly sale of 10-year
504/CDC debentures.3504/CDC debentures.3
~~The 504/CDC loan guaranty program is administered through nonprofit Certified Development~~
~~Companies (CDCs).4 Of the total project costs, a third-party lender must provide at least 50% of~~
~~the financing, the CDC provides up to 40% of the financing backed by a 100% SBA-guaranteed~~
~~debenture, and the applicant provides at least 10% of the financing.5~~
~~The borrower makes two loan payments, one to the third-party lender and another to the CDC.~~
~~The third-party loan, typical y provided by a bank, can have a fixed or variable interest rate, is~~
~~negotiated between the lender and the borrower, is subject to an interest rate cap, and must have~~
~~at least a 7-year term for a 10-year debenture and at least 10-year term for a 20- or 25-year~~

~~1 U.S. Small Business~~ The 504/CDC program has a statutory loan authorization limit of $7.5 billion per year for “regular” 504/CDC loans and $7.5 billion per year for 504/CDC refinancing loans not involving expansions. These authorization limits are provided through annual appropriations acts. The $7.5 billion limits have been in place since FY2008 for regular 504/CDC loans and since FY2016 for 504/CDC refinancing loans not involving expansions.4 In the event that the SBA reaches these limits, as was the case for regular 504/CDC loans on September 7, 2021, the SBA must suspend any further loan approvals until additional authorization is provided.5 In this instance, the SBA 1 U.S. Small Business Administration (SBA), Administration (SBA), Fiscal Year 2010 Congressional Budget Justification, p. 30, at , p. 30, at
https://www.sba.gov/sites/default/files/2018-06/Congressional_Budget_Justification_2010.pdf. https://www.sba.gov/sites/default/files/2018-06/Congressional_Budget_Justification_2010.pdf.
2 U.S.2 U.S. Government Accountability Office (GAO), Government Accountability Office (GAO), Small Business Administration: 7(a) Loan Program Needs
Additional ~~Perform ance~~Performance Measures, GAO-08-226T, GAO-08-226T , November 1, 2007, pp. 3, 9, November 1, 2007, pp. 3, 9 -11, at http://www.gao.gov/new.items/-11, at http://www.gao.gov/new.items/
d08226t.pdf; and Veroniqued08226t.pdf; and Veronique de Rugy,de Rugy, Why ~~the Sm all Business Adm inistration’s Loan Program s~~ the Small Business Administration’s Loan Programs Should Be Abolished , ,
American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006,American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at at
http://www.aei.org/docLib/20060414_wp126.pdf. Proponents of federal funding for the SBA’shttp://www.aei.org/docLib/20060414_wp126.pdf. Proponents of federal funding for the SBA’s loan guarantee loan guarantee
programs also argueprograms also argue that small businessthat small business can promote competitive markets. See P.L. 83-163, §2(a), as amended; and 15 can promote competitive markets. See P.L. 83-163, §2(a), as amended; and 15
U.S.C.U.S.C. §631a. §631a.
3 3 ~~T he~~The 504 Certified Development Company (504/CDC) program was preceded 504 Certified Development Company (504/CDC) program was preceded by a Section 501 state development by a Section 501 state development
company program (1958-1982), a Section 502 local development company program (1958company program (1958-1982), a Section 502 local development company program (1958 -1995), and a Section -1995), and a Section
503/CDC program (1980-1986). 503/CDC program (1980-1986). ~~T he~~The 504/CDC program started in 1986. 504/CDC program started in 1986.
~~T he~~The 504/CDC program’s 20-year and 25-year debentures are pooled and sold 504/CDC program’s 20-year and 25-year debentures are pooled and sold on the first on the first ~~T hursday~~Thursday of the first full week of the first full week
of each month (beginning with and includingof each month (beginning with and including Sunday);Sunday); 10-year debentures are pooled and sold10-year debentures are pooled and sold on the first on the first ~~T hursday~~Thursday of of
the first full week of every other month (beginning with and includingthe first full week of every other month (beginning with and including Sunday)Sunday) starting with the January sale. See starting with the January sale. See
Eagle Compliance, LLC, “Monthly 504 Interest Rate,” at https://www.eaglecompliance504.com/monthly-504-interest-Eagle Compliance, LLC, “Monthly 504 Interest Rate,” at https://www.eaglecompliance504.com/monthly-504-interest-
rate.html. rate.html.
~~T he SBA~~ The SBA made 25-year 504/CDC debenturesmade 25-year 504/CDC debentures available for 504/CDC projects approved on or after April 2, 2018. See available for 504/CDC projects approved on or after April 2, 2018. See
SBA,SBA, “504 Loans and Debentures With 25 Year Maturity,” 83“504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018. 14536, April 4, 2018.
4 4 ~~Five for-profit CDCs that participated in predecessor programs have been grandfathered into the current 504/CDC~~
~~program. See SBA, “ 504 and 7(a) Loan Programs Updates,” 79 Federal Register 15642, March 21, 2014.~~
~~5 “Generally, a 504 loan may not exceed 40% of total Project cost plus 100% of eligible administrative costs. For good~~
~~cause shown, SBA may authorize an increase in the percentage of Project costs covered up to 50%. No more than 50%~~
~~of eligible Project costs can be from Federal sources, whether received directly or indirectly through an intermediary.”~~
~~See 13 C.F.R. §120.930.~~
~~Congressional Research Service~~

1

~~link to page 6~~ ~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~debenture.6 The CDC loan has a fixed interest rate that is determined when the SBA sel s the~~
~~debenture to fund the loan. The CDC loan’s term is either 10 years (typical y for machinery or~~
~~equipment) or 20 years or 25 years (typical y~~See P.L. 110-161, the Consolidated Appropriations Act, 2008, for the first, annual $7.5 billion 504/CDC limit; and P.L. 114-113, the Consolidated Appropriations Act, 2016, for the first, annual $7.5 billion 504/CDC refinancing limit. P.L. 108-447, the Consolidated Appropriations Act, 2005, had set the 504/CDC limit at $5 billion for FY2005 and $7.5 billion for FY2006. However, P.L. 109-108, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, which was enacted later and, therefore, took precedent, set the 504/CDC limit at $3 billion for FY2006. The SBA’s FY2007 budget was provided through continuing appropriations acts. These acts did not change the 504/CDC limit. 5 SBA, “SBA Procedural Notice: Section 1112 Debt Relief Program Wind Down,” 5000-823852, December 6, 2021, at Congressional Research Service 1 Small Business Administration 504/CDC Loan Guaranty Program suspended regular 504/CDC loan approvals for the remainder of FY2021. Presently, the current pace of regular 504/CDC loan approvals in FY2022 would exceed the program’s $7.5 billion limit during the summer of FY2022.6 The 504/CDC loan guaranty program is administered through nonprofit Certified Development Companies (CDCs).7 Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing backed by a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing.8 The borrower makes two loan payments, one to the third-party lender and another to the CDC. The third-party loan, typically provided by a bank, can have a fixed or variable interest rate, is negotiated between the lender and the borrower, is subject to an interest rate cap, and must have at least a 7-year term for a 10-year debenture and at least 10-year term for a 20- or 25-year debenture.9 The CDC loan has a fixed interest rate that is determined when the SBA sells the debenture to fund the loan. The CDC loan’s term is either 10 years (typically for machinery or equipment) or 20 years or 25 years (typically for real estate). for real estate).
The SBA’s debenture is backed by the full faith and credit of the United States and is sold to The SBA’s debenture is backed by the full faith and credit of the United States and is sold to
underwriters that form debenture pools. Investors purchase interests in the debenture pools and underwriters that form debenture pools. Investors purchase interests in the debenture pools and
receive Development Company Participation certificates (DCPC) representing ownership of receive Development Company Participation certificates (DCPC) representing ownership of al all or or
part of the pool. DCPCs have a minimum value of $25,000 and can be sold on the secondary part of the pool. DCPCs have a minimum value of $25,000 and can be sold on the secondary
market. market.
The SBA and CDCs use various agents to facilitate the sale and service of the certificates and the The SBA and CDCs use various agents to facilitate the sale and service of the certificates and the
orderly flow of funds among the parties.orderly flow of funds among the parties.710 After a 504/CDC loan is approved and disbursed, After a 504/CDC loan is approved and disbursed,
accounting for the loan is set up at the Central Servicing Agent (CSA, currently accounting for the loan is set up at the Central Servicing Agent (CSA, currently
PricewaterhouseCoopers Public Sector LLP), not the SBA. The SBA guarantees the timely PricewaterhouseCoopers Public Sector LLP), not the SBA. The SBA guarantees the timely
payment of the debenture. If the payment of the debenture. If the ~~smal~~ small business is behind in its loan payments, the SBA pays the business is behind in its loan payments, the SBA pays the
difference to the investor on every semiannual due date. difference to the investor on every semiannual due date.
In FY2021, the SBA In FY2021, the SBA approved 9,676 504/CDC loans totaling over $8.2 approved 9,676 504/CDC loans totaling over $8.2 ~~bil ion.8~~billion.11 Included in these Included in these
figures were 693 504/CDC refinancing loans totaling $709 figures were 693 504/CDC refinancing loans totaling $709 ~~mil ion.~~ million. As of September 30, 2021, As of September 30, 2021,
regular 504/CDC loans had an unpaid principal balance of about $28.9 regular 504/CDC loans had an unpaid principal balance of about $28.9 ~~bil ion~~billion, and 504/CDC , and 504/CDC
refinancing loans had an unpaid principal balance of about $1.7 refinancing loans had an unpaid principal balance of about $1.7 ~~bil ion.9~~
billion.12 https://www.sba.gov/document/procedural-notice-5000-823852-section-1112-debt-relief-program-wind-down. 6 For additional information related to 504/CDC loan approvals, see SBA, “2022 Weekly Lending Reports,” at https://www.sba.gov/document/report-2022-weekly-lending-reports. 7 Five for-profit CDCs that participated in predecessor programs have been grandfathered into the current 504/CDC program. See SBA, “504 and 7(a) Loan Programs Updates,” 79 Federal Register 15642, March 21, 2014. 8 “Generally, a 504 loan may not exceed 40% of total Project cost plus 100% of eligible administrative costs. For good cause shown, SBA may authorize an increase in the percentage of Project costs covered up to 50%. No more than 50% of eligible Project costs can be from Federal sources, whether received directly or indirectly through an intermediary.” See 13 C.F.R. §120.930. 9 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018; and 13 C.F.R. §120.921. 10 13 C.F.R. §120.801. 11 SBA, “SBA Lending Statistics for Major Programs (as of September 30, 2021),” at https://www.sba.gov/document/report-2021-weekly-lending-reports (hereinafter SBA, “SBA Lending Statistics for Major Programs (as of September 30, 2021)”). 12 SBA, “Small Business Administration loan program performance: Table 1 – Unpaid Principal Balance (UPB) by Program,” effective September 30, 2021, at https://www.sba.gov/document/report-small-business-administration-loan-program-performance. Congressional Research Service 2 link to page 7 Small Business Administration 504/CDC Loan Guaranty Program This report opens with an examination of the 504/CDC program’s operating structures and This report opens with an examination of the 504/CDC program’s operating structures and
requirements, including borrower and lender eligibilityrequirements, including borrower and lender eligibility standards, loan terms and conditions, and standards, loan terms and conditions, and
program fees. It presents 504/CDC program statistics, including loan volume, credit subsidies, program fees. It presents 504/CDC program statistics, including loan volume, credit subsidies,
proceeds usage, and borrower demographics. It then discusses issues raised concerning the SBA’s proceeds usage, and borrower demographics. It then discusses issues raised concerning the SBA’s
administration of the program, including the oversight of 504/CDC lenders. The report also administration of the program, including the oversight of 504/CDC lenders. The report also
presents 504/CDC legislation enacted from the 111th through 117th Congresses. presents 504/CDC legislation enacted from the 111th through 117th Congresses.
Program Participants and Financing Contribution
As shown As shown inin Table 1, ~~504~~ 504/CDC projects /CDC projects ~~general y~~generally have three main participants: a third-party have three main participants: a third-party
lender provides 50% or more of the financing; a CDC provides up to 40% of the financing lender provides 50% or more of the financing; a CDC provides up to 40% of the financing
through a 504/CDC debenture, which is 100% guaranteed by the SBA; and the borrower through a 504/CDC debenture, which is 100% guaranteed by the SBA; and the borrower
contributes at least 10% of the financing. contributes at least 10% of the financing.
The CDC’s contribution, and the amount of the SBA’s 100% guaranteed debenture, The CDC’s contribution, and the amount of the SBA’s 100% guaranteed debenture, ~~general y~~
generally cannot exceed 40% of the financing for standard 504/CDC loans. It cannot exceed 35% of the cannot exceed 40% of the financing for standard 504/CDC loans. It cannot exceed 35% of the
financing for new businesses (defined as “a business that is two years old or less at the time the financing for new businesses (defined as “a business that is two years old or less at the time the
loan is approved”) or if the loan is for either a limited-market property (defined as “a property loan is approved”) or if the loan is for either a limited-market property (defined as “a property
with a unique physical design, special construction materials, or a layout that restricts its utility to with a unique physical design, special construction materials, or a layout that restricts its utility to

~~6 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018; and 13 C.F.R.~~
~~§120.921.~~
~~7 13 C.F.R. §120.801.~~
~~8 SBA, “SBA Lending Statistics for Major Programs (as of September 30, 2021),” at https://www.sba.gov/document/~~
~~report -2021-weekly-lending-reports (hereinafter SBA, “ SBA Lending Statistics for Major Programs (as of September~~
~~30, 2021)”).~~
~~9 SBA, “Small Business Administration loan program performance: T able 1 – Unpaid Principal Balance (UPB) by~~
~~Program,” effective September 30, 2021, at https://www.sba.gov/document/report-small-business-administration-loan-~~
~~program-performance.~~
~~Congressional Research Service~~

2

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~the use for which it is designed”) or a special purpose property.10~~the use for which it is designed”) or a special purpose property.13 The SBA lists 27 limited The SBA lists 27 limited and and
special purpose properties (e.g., dormitories, golf courses, hospitals, and bowling special purpose properties (e.g., dormitories, golf courses, hospitals, and bowling ~~al eys).11~~alleys).14 The The
CDC’s contribution cannot exceed 30% of the financing when the borrower is a new business CDC’s contribution cannot exceed 30% of the financing when the borrower is a new business and
the loan is for either a limited-market property or special purpose property. the loan is for either a limited-market property or special purpose property.
Borrowers must contribute at least 10% of the financing for standard 504/CDC loans and at least Borrowers must contribute at least 10% of the financing for standard 504/CDC loans and at least
15% if the borrower is a new business or if the loan is for a limited-market property or special 15% if the borrower is a new business or if the loan is for a limited-market property or special
purpose property.purpose property.1215 They must contribute at least 20% if the borrower is a new business They must contribute at least 20% if the borrower is a new business and the the
~~loan is for either a limited-market property or special purpose property.13~~
~~Table 1. 504/CDC Loan Structures and Contribution Requirements~~
~~New Business or~~
~~Both New Business and~~
~~Limited or Special~~
~~Limited or Special~~
~~Participant~~
~~Standard Loan~~
~~Purpose Property Loan Purpose Property Loan~~
~~Third-Party Lender~~
~~At least 50%~~
~~At least 50%~~
~~At least 50%~~
~~CDC/SBA~~
~~Maximum 40%~~
~~Maximum 35%~~
~~Maximum 30%~~
~~Borrower~~
~~At least 10%~~
~~At least 15%~~
~~At least 20%~~
Source: U.S. Smal Business Administration, “SOP 50 10 6: Lender and Development Company Loan Programs,”
~~effective October 1, 2020, pp. 455, 456, at https://www.sba.gov/document/sop-50-10-lender-development-~~
~~company-loan-programs-0.~~

10loan is for either a limited-market property or special purpose property.16 13 A 504/CDC loan generally may not exceed 40% of total project A 504/CDC loan generally may not exceed 40% of total project ~~cost s~~costs, plus 100% of eligible, plus 100% of eligible administrative costs. administrative costs.
“For good cause“For good cause shown, SBAshown, SBA may authorize an increase in the percentage of project costs covered up to 50%. No more may authorize an increase in the percentage of project costs covered up to 50%. No more
than 50% of eligiblethan 50% of eligible project costs can beproject costs can be from Federal sources, whether received directly or indirectly through an from Federal sources, whether received directly or indirectly through an
intermediary.” See 13 C.F.R.intermediary.” See 13 C.F.R. §120.930. §120.930.
~~11 T he SBA~~ 14 The SBA considers the following to be limited or special purpose considers the following to be limited or special purpose ~~propert ies~~properties: amusement parks; bowling: amusement parks; bowling alleys; car alleys; car
washwash properties; cemeteries; clubhouses;properties; cemeteries; clubhouses; cold storage facilities in whichcold storage facilities in which more than 50% of total square footage is more than 50% of total square footage is
equippedequipped for refrigeration; dormitories; farms, including dairy facilities; funeral homes with crematoriums; gas stations; for refrigeration; dormitories; farms, including dairy facilities; funeral homes with crematoriums; gas stations;
golf courses;golf courses; hospitals, surgery centers, urgent care centers, and other health medical facilities; hotels and motels; hospitals, surgery centers, urgent care centers, and other health medical facilities; hotels and motels;
marinas; mines; museums;marinas; mines; museums; nursing homes, includingnursing homes, including assisted livingassisted living facilities; oil wells;facilities; oil wells; quarries, includingquarries, including gravel pits; gravel pits;
railroads; sanitary landfills;railroads; sanitary landfills; service centers (e.g., oil and lube,service centers (e.g., oil and lube, brake, or transmission centers) with pits and in-ground brake, or transmission centers) with pits and in-ground
lifts; sports arenas; swimminglifts; sports arenas; swimming pools; tennis clubs;pools; tennis clubs; theaters; and wineries.theaters; and wineries. SBA,SBA, “ “SOP 50 10 6: Lender and SOP 50 10 6: Lender and
Development Company Loan Programs,” effective October 1, 2020, pp. 478, 479, at https://www.sba.gov/document/Development Company Loan Programs,” effective October 1, 2020, pp. 478, 479, at https://www.sba.gov/document/
sop-50-10-lender-development-company-loan-programs-0 (hereinafter “sop-50-10-lender-development-company-loan-programs-0 (hereinafter “ SOP 50 10 6: Lender and Development SOP 50 10 6: Lender and Development
Company Loan Programs”). Company Loan Programs”).
~~12 T he SBA~~ 15 The SBA announced in the announced in the Federal Register on August on August 3, 2020, that “due to an economic recession as determined by 3, 2020, that “due to an economic recession as determined by
the National Bureau of Economic Research, borrowers in the 504 Loan Program may contribute not less than 10%, the National Bureau of Economic Research, borrowers in the 504 Loan Program may contribute not less than 10%,
instead of not less than 15%, to projects involving limited or special instead of not less than 15%, to projects involving limited or special ~~pur pose buildings~~ purpose buildings or structures when refinancing or structures when refinancing
debt without expansion. debt without expansion. ~~T he~~The lower required lower required contribution will be in effect until the first day of the calendar quarter contribution will be in effect until the first day of the calendar quarter
followingfollowing the end of the economic recession as determined by the National Bureau of Economicthe end of the economic recession as determined by the National Bureau of Economic Research or its Research or its
equivalent.” Seeequivalent.” See SBA,SBA, “ “504 Debt Refinancing Without Expansion504 Debt Refinancing Without Expansion -Borrower’s Contribution for Projects Involving -Borrower’s Contribution for Projects Involving
Limited or SingleLimited or Single Purpose BuildingsPurpose Buildings During Recession,”During Recession,” 8585 Federal Register 46775-46776, August 3, 2020. 46775-46776, August 3, 2020.
1316 “Loans under the 504 program provide permanent or take-out financing [long-term financing that replaces short “Loans under the 504 program provide permanent or take-out financing [long-term financing that replaces short -term -term
interim financing, often one with a shorter duration and higher interest rate]interim financing, often one with a shorter duration and higher interest rate] . ...An interim lender (either the . ...An interim lender (either the ~~T hird~~Third Party Party
Lender or another lender) provides the interim financing to cover the period between SBALender or another lender) provides the interim financing to cover the period between SBA approval of the project and Congressional Research Service 3 Small Business Administration 504/CDC Loan Guaranty Program Table 1. 504/CDC Loan Structures and Contribution Requirements New Business or Both New Business and Limited or Special Limited or Special Participant Standard Loan Purpose Property Loan Purpose Property Loan Third-Party Lender At least 50% At least 50% At least 50% CDC/SBA Maximum 40% Maximum 35% Maximum 30% Borrower At least 10% At least 15% At least 20% Source: U.S. Small Business Administration, “SOP 50 10 6: Lender and Development Company Loan Programs,” effective October 1, 2020, pp. 455, 456, at https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs-0.~~approval of the project and~~
~~the debenture sale. After the project is completed, the CDC will close the 504 loan. T he proceeds from the Debenture~~
~~sale repay the interim lender for the amount of the 504 project costs that it advanced on an interim basis.… T he interim~~
~~financing must be fully disbursed and the project completed prior to the sale of the Debenture with one exception. A~~
~~portion of the debenture proceeds may be put into an escrow account to complete a minor portion of the total project.”~~
~~SBA, “ SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 45 7, 500.~~
~~Congressional Research Service~~

3

~~Small Business Administration 504/CDC Loan Guaranty Program~~

Borrower Eligibility Standards and Program
Requirements
Borrower Eligibility Standards
To be eligibleTo be eligible for a SBA business loan, a for a SBA business loan, a ~~smal~~ small business applicant must business applicant must
 be located in the United States;  be located in the United States;
 be a for-profit operating business (except for loans to eligible passive  be a for-profit operating business (except for loans to eligible passive
companies); companies);
 qualify as  qualify as ~~smal ;14~~small;17
 demonstrate a need for the desired credit and that the funds are not available from  demonstrate a need for the desired credit and that the funds are not available from
alternative sources, including personal resources of the principals; and alternative sources, including personal resources of the principals; and
 be certified by a lender that the desired credit is unavailable  be certified by a lender that the desired credit is unavailable to the applicant on to the applicant on
reasonable terms and conditions from nonfederal sources without SBA reasonable terms and conditions from nonfederal sources without SBA
assistance.assistance.1518
Several types of businesses are prohibited from participating in the program. For example, Several types of businesses are prohibited from participating in the program. For example,
financial businesses primarily engaged in the business of lending, such as banks and finance financial businesses primarily engaged in the business of lending, such as banks and finance
companies; life insurance companies; businesses located in a foreign country; businesses deriving companies; life insurance companies; businesses located in a foreign country; businesses deriving
~~more than one-third of their gross annual revenue from legal gambling activities; businesses that~~
~~present live performances of a prurient sexual nature; and businesses with an associate who is~~
~~incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral~~
~~turpitude are ineligible.16~~
~~To qualify for a SBA business loan, applicants must be creditworthy and able to reasonably assure~~
~~repayment. The SBA requires lenders to consider the applicant’s~~
~~ character, reputation, and credit history;~~
~~ experience and depth of management;~~
~~ strength of the business;~~
~~ past earnings, projected cash flow, and future prospects;~~

~~14 P.L. 111-240, the Small Business Jobs Act of 2010, required the SBA~~ the debenture sale. After the project is completed, the CDC will close the 504 loan. The proceeds from the Debenture sale repay the interim lender for the amount of the 504 project costs that it advanced on an interim basis.… The interim financing must be fully disbursed and the project completed prior to the sale of the Debenture with one exception. A portion of the debenture proceeds may be put into an escrow account to complete a minor portion of the total project.” SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 457, 500. 17 P.L. 111-240, the Small Business Jobs Act of 2010, required the SBA to establish an alternative size standard for the to establish an alternative size standard for the
504/CDC and 7(a) loan programs that uses maximum tangible net worth and average net income as an alternative to the 504/CDC and 7(a) loan programs that uses maximum tangible net worth and average net income as an alternative to the
useuse of industry standards. At the time of passage, the 7(a) program usedof industry standards. At the time of passage, the 7(a) program used industry-specific sizeindustry-specific size standards and the standards and the
504/CDC program used504/CDC program used maximum net worth of $8.5 million and maximum average net income of $3 million to maximum net worth of $8.5 million and maximum average net income of $3 million to
determine program eligibility. determine program eligibility. ~~T he~~The act establishes the following alternative size standard for both the 504/CDC and 7(a) act establishes the following alternative size standard for both the 504/CDC and 7(a)
programs on an interim basis:programs on an interim basis: the businessthe business ~~qualifies~~ qualifies as small if it does not have a tangible net worth in excessas small if it does not have a tangible net worth in excess of of
$15 million and does not have an average net income after federal taxes (excluding$15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excessany carry-over losses) in excess of of
$5 million for two full fiscal$5 million for two full fiscal years before the date of applicationyears before the date of application . For further analysis concerning SBA. For further analysis concerning SBA size standards, size standards,
see CRSsee CRS Report R40860, Report R40860, ~~Sm all~~Small Business Size Standards: A Historical Analysis of ~~Contem porary Issu es~~Contemporary Issues, by Robert Jay , by Robert Jay
Dilger. Dilger.
15 18 13 C.F.R. §120.100; and 13 C.F.R. §120.101. 13 C.F.R. §120.100; and 13 C.F.R. §120.101.
~~16 13 C.F.R. §120.110. Nineteen types of businesses are ineligible for 504/CDC loans. In addition, an associate is an~~
~~officer, director, owner of more than 20% of the equity, or key employee of the small business; any entity in which one~~
~~or more individuals referred to above owns or controls at least 20% of the equity; and any individual or entity in control~~
~~of or controlled by the small business, except a Small Business Investment Company licensed by the SBA. See 13~~
~~C.F.R. §120.10.~~
~~Congressional Research Service~~

4

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~ ability~~ Congressional Research Service 4 Small Business Administration 504/CDC Loan Guaranty Program more than one-third of their gross annual revenue from legal gambling activities; businesses that present live performances of a prurient sexual nature; and businesses with an associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude are ineligible.19 To qualify for a SBA business loan, applicants must be creditworthy and able to reasonably assure repayment. The SBA requires lenders to consider the applicant’s  character, reputation, and credit history;  experience and depth of management;  strength of the business;  past earnings, projected cash flow, and future prospects;  ability to repay the loan with earnings from the business; to repay the loan with earnings from the business;
 sufficient invested equity to operate on a sound financial basis;  sufficient invested equity to operate on a sound financial basis;
 potential for long-term success;  potential for long-term success;
 nature and value of collateral (although inadequate collateral  nature and value of collateral (although inadequate collateral ~~wil~~ will not be the sole not be the sole
reason for denial of a loan request); and reason for denial of a loan request); and
 affiliates’ effect on the applicant’s repayment ability.  affiliates’ effect on the applicant’s repayment ability.1720
Borrower Program Requirements
Use of Proceeds
A 504/CDC loan can be used to A 504/CDC loan can be used to
 purchase land and make necessary improvements to the land, such as adding  purchase land and make necessary improvements to the land, such as adding
streets, curbs, gutters, parking lots, utilities, and landscaping; streets, curbs, gutters, parking lots, utilities, and landscaping;
 purchase buildings and make improvements to the buildings, such as altering the  purchase buildings and make improvements to the buildings, such as altering the
building’s facade and updating its heating and electrical systems, plumbing, and building’s facade and updating its heating and electrical systems, plumbing, and
roofing; roofing;
 purchase, transport, dismantle, or  purchase, transport, dismantle, or ~~instal~~ install machinery and equipment, provided the machinery and equipment, provided the
machinery and equipment have a useful life of at least 10 years; machinery and equipment have a useful life of at least 10 years;
 purchase essential furniture and fixtures;  purchase essential furniture and fixtures;
 pay professional fees that are directly attributable and essential to the project,  pay professional fees that are directly attributable and essential to the project,
such as title insurance, title searches and abstract costs, surveys, and zoning such as title insurance, title searches and abstract costs, surveys, and zoning
matters; matters;
 finance short-term debt (  finance short-term debt (bridge financing) for eligible expenses that are directly ) for eligible expenses that are directly
attributable to the project and the financing term is three years or less; attributable to the project and the financing term is three years or less;
 pay interim financing costs, including points, fees, and interest;  pay interim financing costs, including points, fees, and interest;
19 13 C.F.R. §120.110. Nineteen types of businesses are ineligible for 504/CDC loans. In addition, an associate is an officer, director, owner of more than 20% of the equity, or key employee of the small business; any entity in which one or more individuals referred to above owns or controls at least 20% of the equity; and any individual or entity in control of or controlled by the small business, except a Small Business Investment Company licensed by the SBA. See 13 C.F.R. §120.10. 20 13 C.F.R. §120.150. Congressional Research Service 5 Small Business Administration 504/CDC Loan Guaranty Program  create a contingency fund, provided the fund does not exceed 10% of the  create a contingency fund, provided the fund does not exceed 10% of the
project’s construction costs; project’s construction costs;
 finance “do-it-yourself” construction expenses, including renovations and the  finance “do-it-yourself” construction expenses, including renovations and the
~~instal ation~~ installation of machinery and equipment; and of machinery and equipment; and
 finance permissible debt refinancing with or without business expansion.  finance permissible debt refinancing with or without business expansion.1821
A 504/CDC loan cannot be used for working capital or inventory. A 504/CDC loan cannot be used for working capital or inventory.
Job Creation and Retention Requirement
Al All 504/CDC borrowers must meet at least one of two specified economic development 504/CDC borrowers must meet at least one of two specified economic development
objectives. First, borrowers, other than objectives. First, borrowers, other than ~~smal~~ small manufacturers, must create or retain at least one job manufacturers, must create or retain at least one job
for every $75,000 of project debenture within two years of project completion.for every $75,000 of project debenture within two years of project completion.1922 Borrowers who are small manufacturers (defined as a small ~~Borrowers who~~

~~17 13 C.F.R. §120.150.~~
~~18 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 4 60-462. A project involves~~
~~expansion “ if it involves the acquisition, construction, or improvement of land, building or equipment for use by the~~
~~Applicant.” See “ SOP 50 10 6: Lender and Development Company Loan Programs,” p. 469.~~
~~19 SBA, “Development Company Loan Program - Job Creation and Retention Requirements; Additional Areas for~~
~~Higher Portfolio Average,” 83 Federal Register 55225, November 2, 2018. Previously, P.L. 108-447, the Small~~
~~Congressional Research Service~~

5

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~are smal manufacturers (defined as a smal~~ business with its primary North American Industry business with its primary North American Industry
Classification System Code in Sectors 31, 32, and 33 and Classification System Code in Sectors 31, 32, and 33 and al all of its production facilities located in of its production facilities located in
the United States) must create or retain at least one job per $120,000 of project debenture within the United States) must create or retain at least one job per $120,000 of project debenture within
two years of project completion.two years of project completion.2023
Borrowers enter the number of jobs to be created or retained as a result of the project in their Borrowers enter the number of jobs to be created or retained as a result of the project in their
application for funds and the CDC verifies that the project meets the job creation or retention application for funds and the CDC verifies that the project meets the job creation or retention
requirements. The jobs created do not have to be at the project facility, but 75% of the jobs must requirements. The jobs created do not have to be at the project facility, but 75% of the jobs must
be created in the community in which the project is located. Using job retention to satisfy this be created in the community in which the project is located. Using job retention to satisfy this
requirement is requirement is ~~al owed~~allowed only if the CDC “can reasonably show that jobs would be lost to the only if the CDC “can reasonably show that jobs would be lost to the
community if the project was not done.”community if the project was not done.”2124
If the borrower does not meet the job creation or retention requirement, the borrower can retain If the borrower does not meet the job creation or retention requirement, the borrower can retain
~~eligibility~~ eligibility by meeting (1) any 1 of 5 community development goals, (2) any 1 of 10 public policy by meeting (1) any 1 of 5 community development goals, (2) any 1 of 10 public policy
goals, or (3) any 1 of 3 energy reduction goals, provided that the CDC’s goals, or (3) any 1 of 3 energy reduction goals, provided that the CDC’s ~~overal~~ overall portfolio of portfolio of
outstanding debentures meets or exceeds the job creation or retention criteria of at least 1 job outstanding debentures meets or exceeds the job creation or retention criteria of at least 1 job
opportunity created or retained for every $75,000 in project debenture (or for every $85,000 in opportunity created or retained for every $75,000 in project debenture (or for every $85,000 in
project debenture for projects located in special geographic areas such as Alaska, project debenture for projects located in special geographic areas such as Alaska, ~~Hawai~~ Hawaii, state-, state-
designated enterprise zones, empowerment zones, enterprise communities, labor surplus areas, or designated enterprise zones, empowerment zones, enterprise communities, labor surplus areas, or
~~opportunity zones).22 Loans to smal manufacturers are excluded from the calculation of this~~
~~average.23~~
~~The five community development goals are~~
~~ 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 as defined by the U.S. Department of~~
~~Labor.~~
~~The 10 public policy goals are~~

~~Business Reauthorization and Manufacturing Assistance Act o f 2004, had required~~ 21 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 460-462. A project involves expansion “if it involves the acquisition, construction, or improvement of land, building or equipment for use by the Applicant.” See “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 469. 22 SBA, “Development Company Loan Program - Job Creation and Retention Requirements; Additional Areas for Higher Portfolio Average,” 83 Federal Register 55225, November 2, 2018. Previously, P.L. 108-447, the Small Business Reauthorization and Manufacturing Assistance Act of 2004, had required borrowers, other than small borrowers, other than small
manufactures, to create or retain at last one job for every $50,000 guaranteed by the Administration. P.L. 111-5, the manufactures, to create or retain at last one job for every $50,000 guaranteed by the Administration. P.L. 111-5, the
American Recovery and Reinvestment Act of 2009American Recovery and Reinvestment Act of 2009 , increased that amount to every $65,000 guaranteed by the , increased that amount to every $65,000 guaranteed by the
Administration. Administration.
2023 Previously, P.L. 108-447, the Small Business Previously, P.L. 108-447, the Small Business Reauthorization and Manufacturing Assistance Act of 2004, had Reauthorization and Manufacturing Assistance Act of 2004, had
requiredrequired small manufactures to create or retain at last one job for every $small manufactures to create or retain at last one job for every $ 100,000 guaranteed by the Administration. 100,000 guaranteed by the Administration.
2124 SBA SBA “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 453. “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 453. ~~T he~~The SBA reports that CDCs SBA reports that CDCs
supported 66,744 jobs in FY2014, 61,454 jobs in FY2015, 61,983 jobs in FY2016, 59,350 jobs in FY2017, 55,729 jobs supported 66,744 jobs in FY2014, 61,454 jobs in FY2015, 61,983 jobs in FY2016, 59,350 jobs in FY2017, 55,729 jobs
in FY2018, and 52,701 jobs in FY2021. Seein FY2018, and 52,701 jobs in FY2021. See SBA,SBA, FY2021 Congressional Budget Justification and FY2019 Annual
~~Perform ance~~Performance Report, p. 31, at https://www.sba.gov/sites/default/files/2020-02/FY%202021%20CJ-508_FINAL.pdf , p. 31, at https://www.sba.gov/sites/default/files/2020-02/FY%202021%20CJ-508_FINAL.pdf
(hereinafter SBA, (hereinafter SBA, FY2021 Congressional Budget Justification and FY2019 Annual ~~Perform ance Report~~).
~~22 SBA, “Development Company Loan Program - Job Creation and Retention Requirements; Additional Areas for~~
~~Higher Portfolio Average,” 83 Federal Register 55225-55226, November 2, 2018. Previously, P.L. 108-447, the Small~~
~~Business Reauthorization and Manufacturing Assistance Act of 2004, had set these thresholds as: at least one job~~
~~opportunity per every $50,000 guaranteed by the Administration and per every $75,000 guaranteed by the~~
~~Administration for small manufactures. P.L. 111-5, the American Recovery and Reinvestment Act of 2009, increased~~
~~the $50,000 threshold to every $65,000 guaranteed by the Administration.~~
~~23 A job opportunity is defined as a full-time (or equivalent) permanent job created within two years of receipt of~~
~~504/CDC funds or retained in the community because of a 504/CDC loan . See SBA, “ SOP 50 10 6: Lender and~~
~~Development Company Loan Programs,” p. 531.~~
~~Congressional Research Service~~

6

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~ revitalizing~~ Performance Report). Congressional Research Service 6 Small Business Administration 504/CDC Loan Guaranty Program opportunity zones).25 Loans to small manufacturers are excluded from the calculation of this average.26 The five community development goals are  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 as defined by the U.S. Department of Labor. The 10 public policy goals are  revitalizing a business district of a community with a written revitalization or a business district of a community with a written revitalization or
redevelopment plan; redevelopment plan;
 expanding exports;  expanding exports;
 expanding the development of women-owned and - expanding the development of women-owned and -~~control ed smal~~ controlled small businesses; businesses;
 expanding  expanding ~~smal~~ small businesses owned and controlled by veterans (businesses owned and controlled by veterans (~~especial y~~especially
service-disabled veterans); service-disabled veterans);
 expanding minority enterprise development;  expanding minority enterprise development;
 aiding rural development;  aiding rural development;
 increasing productivity and competitiveness (e.g., retooling, robotics,  increasing productivity and competitiveness (e.g., retooling, robotics,
modernization, and competition with imports); modernization, and competition with imports);
 modernizing or upgrading facilities to meet health, safety, and environmental  modernizing or upgrading facilities to meet health, safety, and environmental
requirements; requirements;
 assisting businesses in or moving to areas affected by federal budget reductions,  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 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 in revenues in the area due to a decreased federal presence; or
 reducing unemployment rates in labor surplus areas, as defined by the U.S.  reducing unemployment rates in labor surplus areas, as defined by the U.S.
Department of Labor. Department of Labor.2427
The three energy reduction goals are The three energy reduction goals are
 reducing existing energy consumption by at least 10%;  reducing existing energy consumption by at least 10%;
 increasing the use of sustainable designs, including designs that reduce the use of  increasing the use of sustainable designs, including designs that reduce the use of
greenhouse gas-emitting fossil fuels or low-impact design to produce buildings greenhouse gas-emitting fossil fuels or low-impact design to produce buildings
25 SBA, “Development Company Loan Program - Job Creation and Retention Requirements; Additional Areas for Higher Portfolio Average,” 83 Federal Register 55225-55226, November 2, 2018. Previously, P.L. 108-447, the Small Business Reauthorization and Manufacturing Assistance Act of 2004, had set these thresholds as: at least one job opportunity per every $50,000 guaranteed by the Administration and per every $75,000 guaranteed by the Administration for small manufactures. P.L. 111-5, the American Recovery and Reinvestment Act of 2009, increased the $50,000 threshold to every $65,000 guaranteed by the Administration. 26 A job opportunity is defined as a full-time (or equivalent) permanent job created within two years of receipt of 504/CDC funds or retained in the community because of a 504/CDC loan. See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 531. 27 13 C.F.R. §120.862. Congressional Research Service 7 Small Business Administration 504/CDC Loan Guaranty Program that reduce the use of nonrenewable resources and minimize environmental that reduce the use of nonrenewable resources and minimize environmental
impact; or impact; or
 upgrading plant, equipment, and processes involving renewable energy sources  upgrading plant, equipment, and processes involving renewable energy sources
such as the such as the ~~smal~~ small-scale production of energy for individual buildings’ or -scale production of energy for individual buildings’ or
communities’ consumption, commonly known as micropower, or renewable fuel communities’ consumption, commonly known as micropower, or renewable fuel
producers including biodiesel and ethanol producers.producers including biodiesel and ethanol producers.2528
If the project cannot meet any of these guidelines, then the debenture amount must be reduced to If the project cannot meet any of these guidelines, then the debenture amount must be reduced to
meet the job creation or retention requirement.meet the job creation or retention requirement.2629
Loan Amounts
The minimum 504/CDC debenture is $25,000. P.L. 111-240, the The minimum 504/CDC debenture is $25,000. P.L. 111-240, the ~~Smal~~ Small Business Jobs Act of Business Jobs Act of
2010, increased the maximum gross debenture amount 2010, increased the maximum gross debenture amount
 from $1.5  from $1.5 ~~mil ion to $5 mil ion~~ million to $5 million for regular 504/CDC loans; for regular 504/CDC loans;
 from $2  from $2 ~~mil ion to $5 mil ion~~ million to $5 million if the loan proceeds are directed toward one or if the loan proceeds are directed toward one or
more of the public policy goals described above; more of the public policy goals described above;
 from $4  from $4 ~~mil ion to $5.5 mil ion for smal~~ million to $5.5 million for small manufacturers; manufacturers;
 from $4  from $4 ~~mil ion~~ million to $5.5 to $5.5 ~~mil ion~~million for projects that reduce the borrower’s energy for projects that reduce the borrower’s energy
consumption by at least 10%; and consumption by at least 10%; and

~~24 13 C.F.R. §120.862.~~
~~25 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 454.~~
~~26 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 455.~~
~~Congressional Research Service~~

7

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~ from $4 mil ion to $5.5 mil ion~~  from $4 million to $5.5 million for projects for plant, equipment, and process for projects for plant, equipment, and process
upgrades of renewable energy sources, such as the upgrades of renewable energy sources, such as the ~~smal~~ small-scale production of -scale production of
energy for individual buildings or communities consumption (commonly known energy for individual buildings or communities consumption (commonly known
as micropower), or renewable fuel producers, including biodiesel and ethanol as micropower), or renewable fuel producers, including biodiesel and ethanol
producers.producers.2730
Loan Terms, Interest Rate, and Collateral
Loan Terms
The SBA determines the 504/CDC program’s loan terms and publishes them in the The SBA determines the 504/CDC program’s loan terms and publishes them in the Federal
Register..2831 The current maturity for a 504/CDC loan is The current maturity for a 504/CDC loan is ~~general y~~generally
 20 or 25 years for real estate;  20 or 25 years for real estate;
 10 years for machinery and equipment; and  10 years for machinery and equipment; and
 10, 20, or 25 years based upon a weighted average of the useful life of the assets  10, 20, or 25 years based upon a weighted average of the useful life of the assets
being financed. being financed.2932
The maturities for the first mortgage issued by the third-party lender must be at least 7 years The maturities for the first mortgage issued by the third-party lender must be at least 7 years
when the CDC/504 loan is for a term of 10 years and at least 10 years when the loan is for 20 or when the CDC/504 loan is for a term of 10 years and at least 10 years when the loan is for 20 or
25 years.25 years.3033 28 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 454. 29 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 455. 30 P.L. 111-240, §1112. Maximum Loan Amounts Under 504 Program. 31 13 C.F.R. §120.933. 32 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018. 33 13 C.F.R. §120.921; and SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, Congressional Research Service 8 Small Business Administration 504/CDC Loan Guaranty Program
Interest Rates
As mentioned, 504/CDC borrowers make two loan payments, one to the third-party lender and As mentioned, 504/CDC borrowers make two loan payments, one to the third-party lender and
one to the CDC. The third-party loan can have a fixed or variable interest rate, is negotiated one to the CDC. The third-party loan can have a fixed or variable interest rate, is negotiated
between the lender and the borrower, and is subject to an interest rate cap.between the lender and the borrower, and is subject to an interest rate cap.31
34 The third-party loan’s interest rate “must be reasonable” and the interest rate cap is published by The third-party loan’s interest rate “must be reasonable” and the interest rate cap is published by
the SBAthe SBA in the in the Federal Register. The current maximum interest rate that a third-party lender is . The current maximum interest rate that a third-party lender is
~~al owed~~allowed to charge for a commercial loan that funds any portion of the cost of a 504/CDC project to charge for a commercial loan that funds any portion of the cost of a 504/CDC project
is 6% greater than the New York prime rate or the maximum interest rate permitted in that state, is 6% greater than the New York prime rate or the maximum interest rate permitted in that state,
whichever is less.whichever is less.3235
Borrowers have a general sense of what their 504/CDC loan’s interest rate Borrowers have a general sense of what their 504/CDC loan’s interest rate ~~wil~~ will be when their be when their
completed loan application is submitted to the SBA for approval. However, the loan’s exact completed loan application is submitted to the SBA for approval. However, the loan’s exact
interest rate is not known until after it is pooled with other 504/CDC loan requests and sold to interest rate is not known until after it is pooled with other 504/CDC loan requests and sold to
private investors (private investors (~~typical y~~typically large institutional large institutional investors such as pension funds, insurance investors such as pension funds, insurance
companies, and large banks). Investors receive interest on the debt, companies, and large banks). Investors receive interest on the debt, ~~cal ed~~called a debenture, semi- a debenture, semi-
~~annual y~~annually. Borrowers make monthly payments. ~~. Borrowers make monthly payments.~~

~~27 P.L. 111-240, §1112. Maximum Loan Amounts Under 504 Program.~~
~~28 13 C.F.R. §120.933.~~
~~29 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018.~~
~~30 13 C.F.R. §120.921; and SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536,~~
~~April 4, 2018.~~
~~31 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018; and 13 C.F.R.~~
~~§120.921.~~
~~32 13 C.F.R. §120.921; and SBA, “Reporting and Recordkeeping Requirements Under OMB Review,” 77~~ ~~Federal~~
~~Register~~ ~~59447, September 27, 2012.~~
~~Congressional Research Service~~

8

~~link to page 4~~ ~~Small Business Administration 504/CDC Loan Guaranty Program~~

The 504/CDC loan’s interest rate has several components: the debenture interest rate (i.e., the rate The 504/CDC loan’s interest rate has several components: the debenture interest rate (i.e., the rate
that determines interest paid semi-that determines interest paid semi-~~annual y~~annually to investors who purchase the debenture), the note to investors who purchase the debenture), the note
rate (i.e., the monthly-pay equivalent of the debenture rate, which is rate (i.e., the monthly-pay equivalent of the debenture rate, which is ~~typical y~~typically four to eight basis four to eight basis
points higher than the debenture interest rate depending on the length of the loan’s term), and the points higher than the debenture interest rate depending on the length of the loan’s term), and the
effective rate (i.e., the note rate and the cost impact of ongoing fees). Effective rates are provided effective rate (i.e., the note rate and the cost impact of ongoing fees). Effective rates are provided
to CDCs on a full-term basis and in 5-year increments.to CDCs on a full-term basis and in 5-year increments.3336
The debenture interest rate is based on comparable market conditions for long-term government The debenture interest rate is based on comparable market conditions for long-term government
debt at the time of sale and pegged to an increment above the current market rate. The SBA’s debt at the time of sale and pegged to an increment above the current market rate. The SBA’s
fiscal agent, currently Eagle Compliance, LLC, reaches an agreement with the underwriters on fiscal agent, currently Eagle Compliance, LLC, reaches an agreement with the underwriters on
the sale price of the debentures and, after reaching this agreement, must obtain approvals from the the sale price of the debentures and, after reaching this agreement, must obtain approvals from the
SBA and Treasury before proceeding.SBA and Treasury before proceeding.3437
The 10-year 504/CDC debenture rate (set bimonthly) for The 10-year 504/CDC debenture rate (set bimonthly) for ~~September and October 2021 is 0.90~~January and February 2022 was 1.58%. %.
The comparable Treasury market rate for The comparable Treasury market rate for ~~September 2021 was 0.81~~January 2022 was 1.47%, the note rate was %, the note rate was
~~0.93642~~1.6422%, and the effective full-term interest rate was %, and the effective full-term interest rate was ~~2.687%.35~~3.633%.38
The 20-year 504/CDC debenture rate (set monthly) for The 20-year 504/CDC debenture rate (set monthly) for ~~October 2021 is 1.54~~February 2022 was 2.22%. The comparable %. The comparable
Treasury market rate for Treasury market rate for ~~October 2021 is 1.56~~February 2022 was 1.99%, the note rate %, the note rate ~~is 1.56884~~was 2.2596%, and the effective full-%, and the effective full-
term interest rate term interest rate ~~is 3.021%.36~~
~~The 25-year 504/CDC debenture rate (set monthly) for October 2021 is 1.74%. The comparable~~
~~Treasury market rate for October 2021 is 1.56%, the note rate is 1.76496%, and the effective full-~~
~~term interest rate is 3.157%.37~~
~~Collateral~~
~~The SBA usual y takes a second lien position on the project property to secure the loan. The~~
~~SBA’s second lien position is considered adequate when the applicant meets al of the following~~
~~criteria:~~
~~ strong, consistent cash flow that is sufficient to cover the debt;~~
~~ demonstrated, proven management;~~
~~ the business has been in operation for more than two years; and~~
~~ the proposed project is a logical extension of the applicant’s current operations.38~~

33was 3.454%.39 April 4, 2018. 34 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018; and 13 C.F.R. §120.921. 35 13 C.F.R. §120.921; and SBA, “Reporting and Recordkeeping Requirements Under OMB Review,” 77 Federal Register 59447, September 27, 2012. 36 Effective rates do not include the impact of upfront fees and therefore are not APRs. APRs (annual percentage rates) Effective rates do not include the impact of upfront fees and therefore are not APRs. APRs (annual percentage rates)
representrepresent the actual yearly cost of funds over the term of a loanthe actual yearly cost of funds over the term of a loan . .
3437 13 C.F.R. §120.932; and Eagle Compliance, LLC, “How Effective Rates are Calculated,” 13 C.F.R. §120.932; and Eagle Compliance, LLC, “How Effective Rates are Calculated,” at at
https://www.eaglecompliance504.com/monthly-504-interest-rate.html. https://www.eaglecompliance504.com/monthly-504-interest-rate.html.
35 38 Eagle Compliance, LLC, “Monthly 504 Interest Rate, Eagle Compliance, LLC, “Monthly 504 Interest Rate, ~~September 2021~~January 2022 Funding Rates,” at https://nebula.wsimg.com/ Funding Rates,” at https://nebula.wsimg.com/
~~c80b5bd96db149b3f5bf20dbc3479252~~cf1829db06d8db3165f68c94df8af6ed?AccessKeyId=EA7D1AA43344749CDDA0&?AccessKeyId=EA7D1AA43344749CDDA0&~~disposition~~disposition=0&alloworigin=1. =0&alloworigin=1.
3639 Eagle Compliance, LLC, “Monthly 504 Interest Rate, Eagle Compliance, LLC, “Monthly 504 Interest Rate, ~~October 2021 Funding Rates,” at~~
~~https://www.eaglecompliance504.com/monthly-504-interest-rate.html (hereinafter Eagle Compliance, LLC, “ Monthly~~
~~504 Interest Rate, October 2021”).~~
~~37 Eagle Compliance, LLC, “Monthly 504 Interest Rate, October 2021.”~~
~~As mentioned in footnote 3, 10-year debentures are pooled and sold the first T hursday of the first full week of every~~
~~other month (beginning with and including Sunday) starting with the January sale; 20- and 25-year debentures are~~
~~pooled and sold the first T hursday of the first full week of each month (beginning with and including Sunday).~~
~~38 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 485.~~
~~Congressional Research Service~~

9

~~Small Business Administration 504/CDC Loan Guaranty Program~~
February 2022 Funding Rates,” at Congressional Research Service 9 link to page 4 Small Business Administration 504/CDC Loan Guaranty Program The 25-year 504/CDC debenture rate (set monthly) for February 2022 was 2.42%. The comparable Treasury market rate for February 2022 was 1.99%, the note rate was 2.4526%, and the effective full-term interest rate was 3.598%.40 Collateral The SBA usually takes a second lien position on the project property to secure the loan. The SBA’s second lien position is considered adequate when the applicant meets all of the following criteria:  strong, consistent cash flow that is sufficient to cover the debt;  demonstrated, proven management;  the business has been in operation for more than two years; and  the proposed project is a logical extension of the applicant’s current operations.41
If one or more of the above factors is not met, additional collateral or increased equity If one or more of the above factors is not met, additional collateral or increased equity
contributions may be required. contributions may be required. Al All collateral must be insured against such hazards and risks as the collateral must be insured against such hazards and risks as the
SBA may require, with provisions for notice to the SBA and the CDC in the event of impending SBA may require, with provisions for notice to the SBA and the CDC in the event of impending
lapse of coverage.lapse of coverage.3942 However, for 504/CDC loans, the applicant’s cash flow is the primary source However, for 504/CDC loans, the applicant’s cash flow is the primary source
of repayment, not the liquidation of collateral. Thus, “if the lender’s financial analysis of repayment, not the liquidation of collateral. Thus, “if the lender’s financial analysis
demonstrates that the applicant lacks reasonable assurance of repayment in a timely manner from demonstrates that the applicant lacks reasonable assurance of repayment in a timely manner from
the cash flow of the business, the loan request must be declined, regardless of the collateral the cash flow of the business, the loan request must be declined, regardless of the collateral
~~available~~ available or outside sources of repayment.”or outside sources of repayment.”4043
CDC Eligibility Standards, Operating
Requirements, and Program Requirements
CDC Eligibility Standards
CDCs apply to the SBACDCs apply to the SBA for certification to participate in the 504/CDC program. A CDC must be a for certification to participate in the 504/CDC program. A CDC must be a
nonprofit corporation,nonprofit corporation,4144 and it must and it must
 be in good standing in the state in which it is incorporated;  be in good standing in the state in which it is incorporated;
 be in compliance with  be in compliance with al all laws, including taxation requirements, in the state in laws, including taxation requirements, in the state in
which it is incorporated and any other state in which it conducts business; which it is incorporated and any other state in which it conducts business;
https://www.eaglecompliance504.com/monthly-504-interest-rate.html (hereinafter Eagle Compliance, LLC, “Monthly 504 Interest Rate, February 2022”). 40 Eagle Compliance, LLC, “Monthly 504 Interest Rate, February 2022.” As mentioned in footnote 3, 10-year debentures are pooled and sold the first Thursday of the first full week of every other month (beginning with and including Sunday) starting with the January sale; 20- and 25-year debentures are pooled and sold the first Thursday of the first full week of each month (beginning with and including Sunday). 41 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 485. 42 13 C.F.R. §120.934. 43 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 246. 44 Five for-profit CDCs that participated in predecessor programs have been grandfathered into the current 504/CDC program. See SBA, “504 and 7(a) Loan Programs Updates,” 79 Federal Register 15642, March 21, 2014. Congressional Research Service 10 Small Business Administration 504/CDC Loan Guaranty Program  provide the SBA a copy of its IRS tax exempt status, organizational chart, articles  provide the SBA a copy of its IRS tax exempt status, organizational chart, articles
of incorporation, bylaws, plan of operation, and operating budget; of incorporation, bylaws, plan of operation, and operating budget;
 indicate its area of operations, which is the state of the CDC’s incorporation;  indicate its area of operations, which is the state of the CDC’s incorporation;4245
and and
 have a board of directors that  have a board of directors that ~~fulfil s~~fulfills specified requirements, such as having at specified requirements, such as having at
least nine voting members, requiring a quorum of at least 50% of its voting least nine voting members, requiring a quorum of at least 50% of its voting
membership to transact business, and meets at least quarterly.membership to transact business, and meets at least quarterly.4346
If approved by the SBA, newly certified CDCs are on probation for two years. At the end of this If approved by the SBA, newly certified CDCs are on probation for two years. At the end of this
time, the CDC must petition for either permanent CDC status or a single, one-year extension of time, the CDC must petition for either permanent CDC status or a single, one-year extension of
probation. To be considered for permanent CDC status or an extension of probation, the CDC probation. To be considered for permanent CDC status or an extension of probation, the CDC
must have satisfactory performance as determined by the SBA in its discretion. Examples of the must have satisfactory performance as determined by the SBA in its discretion. Examples of the
factors that may be considered in determining satisfactory performance include the CDC’s risk factors that may be considered in determining satisfactory performance include the CDC’s risk

~~39 13 C.F.R. §120.934.~~
~~40 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 246.~~
~~41 Five for-profit CDCs that participated in predecessor programs have been grandfathered into the current 504/CDC~~
~~program. See SBA, “ 504 and 7(a) Loan Programs Updates,” 79 Federal Register 15642, March 21, 2014.~~
~~42 A CDC can apply to be a multistate CDC “ only if the State the CDC seeks to expand into is contiguous to the State~~
~~of the CDC’s incorporation and the CDC establishes a loan committee in that State meeting the requirements of [ 13]~~
~~C.F.R. §120.823.” See SBA, “ 504 and 7(a) Loan Programs Updates,” 79 Federal Register 15651, March 21, 2014 (the~~
~~multi-state CDC language is effective as of April 21, 2014).~~
~~43 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 67, 68. The SBA issued a final~~
~~rule, effective April 21, 2015, that changed th e SBA’s regulations concerning the CDC’s board of directors ( 13 C.F.R.~~
~~§120.823). For example, the CDC’s board of directors are now required~~ rating, on-site review and examination assessments, historical performance measures (like default rate, purchase rate, and loss rate), loan volume to the extent that it impacts performance measures, and other performance-related measurements and information (such as contribution toward SBA’s mission).47 In FY2020, 208 CDCs provided at least one 504/CDC loan.48 CDC Operating Requirements The CDC’s board of directors is allowed to establish a loan committee composed of members of the CDC who may or may not be on the CDC’s board of directors. The loan committee reports to the board and must meet specified requirements, such as having at least two members with commercial lending experience satisfactory to the SBA, generally requiring all of its members to live or work in the area of operations of the state in which the 504/CDC project they are voting on is located, not allowing any CDC staff to serve on the loan committee, and requiring a quorum of at least five committee members authorized to vote to hold a meeting.49 In addition, multistate 45 A CDC can apply to be a multistate CDC “only if the State the CDC seeks to expand into is contiguous to the State of the CDC’s incorporation and the CDC establishes a loan committee in that State meeting the requirements of [13] C.F.R. §120.823.” See SBA, “504 and 7(a) Loan Programs Updates,” 79 Federal Register 15651, March 21, 2014 (the multi-state CDC language is effective as of April 21, 2014). 46 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 67, 68. The SBA issued a final rule, effective April 21, 2015, that changed the SBA’s regulations concerning the CDC’s board of directors (13 C.F.R. §120.823). For example, the CDC’s board of directors are now required to have at least nine voting directors; at least to have at least nine voting directors; at least
one voting director who represents the economic, community, or workforce development fields; and at least two voting one voting director who represents the economic, community, or workforce development fields; and at least two voting
directors, other than the CDC manager, who represent the commercial lending field. Seedirectors, other than the CDC manager, who represent the commercial lending field. See SBA,SBA, “ “504 and 7(a) Loan Programs Updates,” 79 Federal Register 15641, 15644-15646, March 21, 2014. 47 13 C.F.R. §120.812. 48 SBA, FY2022 Congressional Justification and FY2020 Annual Performance Report, p. 40, at https://www.sba.gov/document/report-congressional-budget-justification-annual-performance-report (hereinafter SBA, FY2022 Congressional Justification and FY2020 Annual Performance Report). 49 13 C.F.R. §120.823. The SBA issued a final rule, effective April 21, 2015, that changed the SBA’s regulations concerning the CDC’s board of directors and the structure and operations of CDC loan committees (13 C.F.R. §120.823). Under the new rule, loan committees are required to have at least two members (instead of one) with commercial lending experience satisfactory to the SBA. See SBA, “504 and 7(a) Loan Programs Updates,” 79 Federal Register 15650, March 21, 2014. Congressional Research Service 11 Small Business Administration 504/CDC Loan Guaranty Program CDCs are required to have a separate loan committee “for each state into which the CDC expands.”50 The SBA also has a number of requirements concerning CDC staff, such as requiring CDCs to “have qualified ~~504 and 7(a) Loan~~
~~Programs Updates,” 79 Federal Register 15641, 15644-15646, March 21, 2014.~~
~~Congressional Research Service~~

10

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~rating, on-site review and examination assessments, historical performance measures (like default~~
~~rate, purchase rate, and loss rate), loan volume to the extent that it impacts performance measures,~~
~~and other performance-related measurements and information (such as contribution toward~~
~~SBA’s mission).44~~
~~In FY2020, 208 CDCs provided at least one 504/CDC loan.45~~
~~CDC Operating Requirements~~
~~The CDC’s board of directors is al owed to establish a loan committee composed of members of~~
~~the CDC who may or may not be on the CDC’s board of directors. The loan committee reports to~~
~~the board and must meet specified requirements, such as having at least two members with~~
~~commercial lending experience satisfactory to the SBA, general y requiring al of its members to~~
~~live or work in the area of operations of the state in which the 504/CDC project they are voting on~~
~~is located, not al owing any CDC staff to serve on the loan committee, and requiring a quorum of~~
~~at least five committee members authorized to vote to hold a meeting.46 In addition, multistate~~
~~CDCs are required to have a separate loan committee “for each state into which the CDC~~
~~expands.”47~~
~~The SBA also has a number of requirements concerning CDC staff, such as requiring CDCs to~~
~~“have qualified~~ full-time professional staff to market, package, process, close and service loans” full-time professional staff to market, package, process, close and service loans”
and “directly employ full-time professional management,” and “directly employ full-time professional management,” ~~typical y~~typically including an executive including an executive
director (or the equivalent) to manage daily operations.director (or the equivalent) to manage daily operations.4851
CDCs are also required to operate “in accordance with CDCs are also required to operate “in accordance with al all SBA loan program requirements” and SBA loan program requirements” and
provide the SBAprovide the SBA “current and accurate information about “current and accurate information about al all certification and operational certification and operational
requirements.”requirements.”4952 CDCs with 504/CDC loan portfolio balances of $30 CDCs with 504/CDC loan portfolio balances of $30 ~~mil ion~~million or more are required or more are required
to submit financial statements audited in accordance with to submit financial statements audited in accordance with ~~general y~~generally accepted accounting accepted accounting
principles (GAAP) by an independent certified public accountant (CPA). CDCs with 504/CDC principles (GAAP) by an independent certified public accountant (CPA). CDCs with 504/CDC
loan portfolio balances of less than $30 loan portfolio balances of less than $30 ~~mil ion~~ million must, at a minimum, submit a review of their loan must, at a minimum, submit a review of their loan
portfolio balances by an independent CPA or independent accountant in accordance with GAAP. portfolio balances by an independent CPA or independent accountant in accordance with GAAP.
The auditor’s opinion must state that the financial statements are in conformity with GAAP.The auditor’s opinion must state that the financial statements are in conformity with GAAP.50

~~44 13 C.F.R. §120.812.~~
~~45 SBA, FY2022 Congressional Justification and FY2020 Annual Performance Report, p. 40, at https://www.sba.gov/~~
~~document/report -congressional-budget-justification-annual-performance-report (hereinafter SBA,~~ ~~FY2022~~
~~Congressional Justification and FY2020 Annual Perform ance Report~~).
~~46 13 C.F.R. §120.823. T he SBA issued a final rule, effective April 21, 2015, that changed the SBA’s regulations~~
~~concerning the CDC’s board of directors and the structure and operations of CDC loan committees (13 C.F.R.~~
~~§120.823). Under the new rule, loan committees are required to have at least two members (instead of one) with~~
~~commercial lending experience satisfactory to the SBA. See SBA, “ 504 and 7(a) Loan Programs Updates,” 79~~ ~~Federal~~
~~Register~~ ~~15650, March 21, 2014.~~
~~47 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 85.~~
~~48 A CDC “may request that SBA waive the requirement of the manager being employed directly only if: (i) T he~~
~~requesting CDC will have full-time professional management that is employed by a non -profit entity (not another~~
~~CDC) that has the economic development of the CDC’s Area of Op erations~~53 CDC Program Requirements The Application Process CDCs must analyze each application in a commercially reasonable manner, consistent with prudent lending standards. The CDC’s analysis must include  a financial analysis of the applicant’s pro forma balance sheet. The pro forma balance sheet must reflect the loan proceeds, use of the loan proceeds, and any other adjustments such as required equity injection or standby debt;  a financial analysis of the applicant’s repayment ability, which must address debt service coverage after the effects of the SBA loans are taken into account and include a historical analysis of the applicant’s cash flow and address the reasonableness of the supporting assumptions used;  a ratio analysis of the applicant’s federal tax returns and financial statements, including comments on any trends and a comparison with industry averages;  a discussion of the owners’ and managers’ relevant experience in the type of business, as well as their personal credit histories;  an analysis of collateral adequacy, including an evaluation of the collateral and lien position offered as well as the liquidation value; 50 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 85. 51 A CDC “may request that SBA waive the requirement of the manager being employed directly only if: (i) The requesting CDC will have full-time professional management that is employed by a non-profit entity (not another CDC) that has the economic development of the CDC’s Area of Operations as one of its principal activities. Such full- as one of its principal activities. Such full-
time management may also work on and operate the other entity’s economic development programs, but must be time management may also work on and operate the other entity’s economic development programs, but must be
available to small businessesavailable to small businesses interested in the 504 Loan interested in the 504 Loan ~~P rogram~~Program and to 504 loan borrowers during and to 504 loan borrowers during ~~regular~~ regular business business
hours; or (ii) hours; or (ii) ~~t he~~the requesting CDC requesting CDC is rural and has insufficient loan volume to justify having management employed is rural and has insufficient loan volume to justify having management employed
directly by the CDC.directly by the CDC. ~~T he~~ The rural CDC rural CDC must contract with another CDC located (i.e., incorporated) in the same general must contract with another CDC located (i.e., incorporated) in the same general
area.” Seearea.” See SBA,SBA, “ “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 90. SOP 50 10 6: Lender and Development Company Loan Programs,” p. 90.
4952 SBA, SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 93. “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 93.
5053 SBA, SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 95. “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 95.
Congressional Research Service Congressional Research Service

1112 Small Business Administration 504/CDC Loan Guaranty Program

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~CDC Program Requirements~~
~~The Application Process~~
~~CDCs must analyze each application in a commercial y reasonable manner, consistent with~~
~~prudent lending standards. The CDC’s analysis must include~~
~~ a financial analysis of the applicant’s pro forma balance sheet. The pro forma~~
~~balance sheet must reflect the loan proceeds, use of the loan proceeds, and any~~
~~other adjustments such as required equity injection or standby debt;~~
~~ a financial analysis of the applicant’s repayment ability, which must address debt~~
~~service coverage after the effects of the SBA loans are taken into account and~~
~~include a historical analysis of the applicant’s cash flow and address the~~
~~reasonableness of the supporting assumptions used;~~
~~ a ratio analysis of the applicant’s federal tax returns and financial statements,~~
~~including comments on any trends and a comparison with industry averages;~~
~~ a discussion of the owners’ and managers’ relevant experience in the type of~~
~~business, as wel as their personal credit histories;~~
~~ an analysis of collateral adequacy, including an evaluation of the collateral and~~
~~lien position offered as wel as the liquidation value;~~
 a discussion of the applicant’s credit experience, including a review of business  a discussion of the applicant’s credit experience, including a review of business
credit reports and any experience the CDC may have with the applicant; and credit reports and any experience the CDC may have with the applicant; and
 other relevant information (e.g., if the application involves a franchise and the  other relevant information (e.g., if the application involves a franchise and the
success of the franchise). success of the franchise).5154
CDCs submit this information, using required SBA forms, to the Sacramento, CA, loan CDCs submit this information, using required SBA forms, to the Sacramento, CA, loan
processing center. processing center.
Accredited Lender Program Status
In 1991, the SBA established the ALP on a pilot basis to provide CDCs that “have developed a In 1991, the SBA established the ALP on a pilot basis to provide CDCs that “have developed a
good partnership with their SBA field office in promoting local economic development and have good partnership with their SBA field office in promoting local economic development and have
demonstrated a good track record in the submission of documentation needed for making and demonstrated a good track record in the submission of documentation needed for making and
servicing of sound loans” an expedited process for approving loan applications and servicing servicing of sound loans” an expedited process for approving loan applications and servicing
actions.actions.5255 P.L. 103-403, the P.L. 103-403, the ~~Smal~~ Small Business Administration Reauthorization and Amendments Act Business Administration Reauthorization and Amendments Act
of 1994, authorized the SBA to establish the ALP on a permanent basis. of 1994, authorized the SBA to establish the ALP on a permanent basis.
CDCs may apply to the SBA for ALP status. Selection is based on several factors, including the CDCs may apply to the SBA for ALP status. Selection is based on several factors, including the
CDC’s experience as a CDC, the number of 504/CDC loans approved, the size of the CDC’s CDC’s experience as a CDC, the number of 504/CDC loans approved, the size of the CDC’s
portfolio, its record of compliance with SBA loan program requirements, and its record of portfolio, its record of compliance with SBA loan program requirements, and its record of
cooperation with cooperation with ~~al SBA~~ all SBA offices.offices.5356 The SBA is able to process loan requests from ALP-CDCs The SBA is able to process loan requests from ALP-CDCs
more quickly than from regular CDCs because it relies on their credit analysis when making the more quickly than from regular CDCs because it relies on their credit analysis when making the

~~51 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 476-484.~~
~~52 SBA, “Loans to State and Local Development Companies Accredited Lenders Program for Certified Development~~
~~Companies,” 60 Federal Register 20391, April 26, 1995.~~
~~53 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 74-76.~~
~~Congressional Research Service~~

12

~~Small Business Administration 504/CDC Loan Guaranty Program~~

decision to guarantee the debenture. About one-third of CDCs have ALP status and they account decision to guarantee the debenture. About one-third of CDCs have ALP status and they account
for about 60% to 70% of for about 60% to 70% of al all 504/CDC lending each year.504/CDC lending each year.5457
Premier Certified Lenders Program Status
P.L. 103-403 also authorized the SBA’s Premier Certified Lenders Program (PCLP) on a pilot P.L. 103-403 also authorized the SBA’s Premier Certified Lenders Program (PCLP) on a pilot
basis through October 1, 1997. The program’s authorization was later extended through October basis through October 1, 1997. The program’s authorization was later extended through October
1, 2002, and given permanent statutory authorization by P.L. 106-554, the Consolidated 1, 2002, and given permanent statutory authorization by P.L. 106-554, the Consolidated
Appropriations Act, 2001 (§1: H.R. 5667, the Appropriations Act, 2001 (§1: H.R. 5667, the ~~Smal~~ Small Business Reauthorization Act of 2000).Business Reauthorization Act of 2000).5558
ALP-CDCs must apply to the SBA ALP-CDCs must apply to the SBA for PCLP status. CDCs provided PCLP status have increased for PCLP status. CDCs provided PCLP status have increased
authority to process, close, service, and liquidate 504/CDC loans. The loans are subject to the authority to process, close, service, and liquidate 504/CDC loans. The loans are subject to the
same terms and conditions as other 504/CDC loans, but the SBA delegates to the PCLP-CDC same terms and conditions as other 504/CDC loans, but the SBA delegates to the PCLP-CDC al
all loan approval decisions, except eligibility. Selection is based on several factors, including loan approval decisions, except eligibility. Selection is based on several factors, including al all of of
the factors used to assess ALP status plus evidence that the CDC has established a Loan Loss the factors used to assess ALP status plus evidence that the CDC has established a Loan Loss
Reserve Fund (LLRF) in compliance with Reserve Fund (LLRF) in compliance with al all requirements [described below], has a demonstrated requirements [described below], has a demonstrated
~~ability “to process, close, service and liquidate 504 and/or PCLP loans,” and has satisfactory SBA~~
~~performance.56~~
~~PCLP-CDCs are required to establish and maintain a LLRF for its financings under the program.~~
54 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 476-484. 55 SBA, “Loans to State and Local Development Companies Accredited Lenders Program for Certified Development Companies,” 60 Federal Register 20391, April 26, 1995. 56 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 74-76. 57 In FY2019, the SBA disbursed 5,845 504/CDC loans totaling $4.74 billion. Of this amount, 4,024 were ALP loans totaling $3.27 billion. See SBA, Office of Congressional and Legislative Affairs, “WDS Report Amount and Count Summary, September 30, 2019: Draft Table 2.8. Delivery Method Approvals by Program and Cohort,” October 18, 2018. 58 P.L. 105-135, the Small Business Reauthorization Act of 1997, extended the program’s authorization to October 1, 2002. Congressional Research Service 13 Small Business Administration 504/CDC Loan Guaranty Program ability “to process, close, service and liquidate 504 and/or PCLP loans,” and has satisfactory SBA performance.59 PCLP-CDCs are required to establish and maintain a LLRF for its financings under the program. The LLRF is used to reimburse the SBA for 10% of any loss sustained by the SBA resulting from The LLRF is used to reimburse the SBA for 10% of any loss sustained by the SBA resulting from
a default in the payment of principal or interest on a PCLP debenture. Each LLRF must equal 1% a default in the payment of principal or interest on a PCLP debenture. Each LLRF must equal 1%
of the original principal amount of each PCLP debenture.of the original principal amount of each PCLP debenture.5760
As of September 30, 2017, 15 CDCs had active PCLP status. As of September 30, 2017, 15 CDCs had active PCLP status.5861 In recent years, the number and In recent years, the number and
amount of 504/CDC loans made through the PCLP program have declined. In FY2009, 373 PCLP amount of 504/CDC loans made through the PCLP program have declined. In FY2009, 373 PCLP
loans amounting to $185.4 loans amounting to $185.4 ~~mil ion~~million were disbursed. In FY2019, 22 PCLP loans totaling $14 were disbursed. In FY2019, 22 PCLP loans totaling $14
~~mil ion~~ million were disbursed.were disbursed.5962
Real Estate Appraisals
As part of its analysis of each application, CDCs are required to have an independent appraisal As part of its analysis of each application, CDCs are required to have an independent appraisal
conducted of the real estate if the estimated value of the project property is greater than the conducted of the real estate if the estimated value of the project property is greater than the
federal banking regulator appraisal threshold (currently $500,000). CDCs may be required to federal banking regulator appraisal threshold (currently $500,000). CDCs may be required to
have an independent appraisal conducted of the real estate if the estimated value of the project have an independent appraisal conducted of the real estate if the estimated value of the project
property is equal to or less than the federal banking regulator appraisal threshold “and such property is equal to or less than the federal banking regulator appraisal threshold “and such
appraisal is necessary for appropriate evaluation of creditworthiness.”appraisal is necessary for appropriate evaluation of creditworthiness.”6063 The appraiser must have no appearance of a conflict of interest and be either state licensed or state certified. When the project property’s estimated value is more than $1 million, the appraiser must be state certified.64 Pre-Closing Interim Disbursements SBA-approved 504/CDC loans are not closed until after project-related construction is complete, which often takes one to two years. All loans must be disbursed within 48 months of approval.65 Prior to the sale of a debenture and the SBA’s funding of the 504/CDC loan, the borrower may obtain interim financing from a third-party lender, usually the same lender that provided the loan 59 SBA, ~~The appraiser must have~~

~~54 In FY2019, the SBA disbursed 5,845 504/CDC loans totaling $4.74 billion. Of this amount, 4,024 were ALP loans~~
~~totaling $3.27 billion. See SBA, Office of Congressional and Legislative Affairs, “ WDS Report Amount and Count~~
~~Summary, September 30, 2019: Draft T able 2.8. Delivery Method Approvals by Program and Cohort ,” October 18,~~
~~2018.~~
~~55 P.L. 105-135, the Small Business Reauthorization Act of 1997, extended the program’s authorization to October 1,~~
~~2002.~~
~~56 SBA,~~ “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 77, 78. “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 77, 78.
5760 SBA, SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 79. “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 79.
5861 SBA, SBA, Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017. All PCLP-Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017. All PCLP-
CDCsCDCs have ALP status as that is a requirement for beinghave ALP status as that is a requirement for being provided PCLP authority. provided PCLP authority.
5962 SBA, SBA, Office of Congressional and Legislative Affairs, “WDS Report Amount and Count SummaryOffice of Congressional and Legislative Affairs, “WDS Report Amount and Count Summary , September 30, , September 30,
2019: Draft 2019: Draft ~~T able~~Table 2.8. Delivery Method Approvals by Program and Cohort,” October 18, 2018. 2.8. Delivery Method Approvals by Program and Cohort,” October 18, 2018.
60 63 15 U.S.C. 15 U.S.C. §696(3)(E)(ii). §696(3)(E)(ii). ~~T he~~The federal banking regulator appraisal threshold is “…the lesser of the threshold amounts federal banking regulator appraisal threshold is “…the lesser of the threshold amounts
set by the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit set by the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Federal Deposit
~~Congressional Research Service~~

13

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~no appearance of a conflict of interest and be either state licensed or state certified. When the~~
~~project property’s estimated value is more than $1 mil ion, the appraiser must be state certified.61~~
~~Pre-Closing Interim Disbursements~~
~~SBA-approved 504/CDC loans are not closed until after project-related construction is complete,~~
~~which often takes one to two years. Al loans must be disbursed within 48 months of approval.62~~
~~Prior to the sale of a debenture and the SBA’s funding of the 504/CDC loan, the borrower may~~
~~obtain interim financing from a third-party lender, usually the same lender that provided the loan~~
~~covering 50% of the total 504 project financing.63 The proceeds from the debenture sale repay the~~
~~interim lender for the amount of the 504/CDC project costs that it advanced on an interim basis.64~~Insurance Corporation for when a federally related transaction that is a commercial real estate transaction requires an appraisal prepared by a State licensed or certified appraiser.” See P.L. 115-371, the Small Business Access to Capital and Efficiency (ACE) Act. Previously, the thresholds in statute were more than $250,000 and $250,000 or less if the appraisal was necessary for appropriate evaluation of creditworthiness. See SBA, “SOP 50 10 5(J): Lender and Development Company Loan Programs,” effective January 1, 2018, p. 194, at https://www.sba.gov/document/sop-50-10-5-lender-development-company-loan-programs. 64 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 260. 65 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 515. Congressional Research Service 14 Small Business Administration 504/CDC Loan Guaranty Program covering 50% of the total 504 project financing.66 The proceeds from the debenture sale repay the interim lender for the amount of the 504/CDC project costs that it advanced on an interim basis.67
Closing
The CDC closes the loan in time to meet a specific debenture funding date. At the time of closing, The CDC closes the loan in time to meet a specific debenture funding date. At the time of closing,
the project must be complete (except funds put into a construction escrow account to complete a the project must be complete (except funds put into a construction escrow account to complete a
minor portion of the project). The SBA’s district counsel reviews the closing package and notifies minor portion of the project). The SBA’s district counsel reviews the closing package and notifies
the Central Servicing Agent (CSA, currently PricewaterhouseCoopers Public Sector LLP) and the the Central Servicing Agent (CSA, currently PricewaterhouseCoopers Public Sector LLP) and the
CDC via email if the loan is approved for debenture funding. If the loan is approved, the CDC CDC via email if the loan is approved for debenture funding. If the loan is approved, the CDC
forwards specified documents needed for the debenture funding directly to the CSA using a forwards specified documents needed for the debenture funding directly to the CSA using a
transmittal letter or spreadsheet. As mentioned, because the 504/CDC program provides transmittal letter or spreadsheet. As mentioned, because the 504/CDC program provides
permanent or permanent or take-out financing, an interim lender (either the third-party lender or another lender) financing, an interim lender (either the third-party lender or another lender)
~~typical y~~typically provides financing to cover the period between SBA approval of the project and the provides financing to cover the period between SBA approval of the project and the
debenture sale. Proceeds from the debenture sale are used to repay the interim lender for the debenture sale. Proceeds from the debenture sale are used to repay the interim lender for the
amount of the project costs that it advanced on an interim basis.amount of the project costs that it advanced on an interim basis.6568
Loan Guaranty and Servicing Fees
Borrowers are currently charged fees amounting to about 3.5% of the net debenture proceeds plus Borrowers are currently charged fees amounting to about 3.5% of the net debenture proceeds plus
annual servicing and guaranty fees of about 1% of the unpaid debenture balance. Some of these annual servicing and guaranty fees of about 1% of the unpaid debenture balance. Some of these
fees are charged by the SBA to the CDC and others are charged by the CDC directly to the fees are charged by the SBA to the CDC and others are charged by the CDC directly to the
~~borrower.~~

~~Insurance Corporation for when a federally related transaction that is a commercial real estate transaction requires an~~
~~appraisal prepared by a State licensed or certified appraiser.” See P.L. 115-371, the Small Business Access to Capital~~
~~and Efficiency (ACE) Act.~~
~~Previously, the thresholds in statute were more than $250,000 and $250,000 or less if the appraisal was necessary for~~
~~appropriate evaluation of creditworthiness. See SBA, “ SOP 50 10 5(J): Lender and Development Company Loan~~
~~Programs,” effective January 1, 2018, p. 194, at https://www.sba.gov/document/sop-50-10-5-lender-development-~~
~~company-loan-programs.~~
~~61 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 260.~~
~~62 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 515.~~
~~63 GAO,~~ borrower. SBA Fees The SBA is authorized to charge CDCs five fees to help recoup the SBA’s expenses: a guaranty fee, servicing fee, funding fee, development company fee, and participation fee. Guaranty Fee The SBA is authorized to charge CDCs a one-time, up-front guaranty fee of 0.5% of the debenture.69 The SBA elected not to charge this fee in FY2009-FY2011, and FY2016-FY2018. The SBA charged this fee in FY2012-FY2015, FY2019-FY2020, at the outset of FY2021, and in FY2022.70 66 GAO, Small Business Administration: Actions Needed to Ensure Planned Improvements Address Key Requirements
of the ~~Developm ent Com pany~~Development Company (504) Loan Program, GAO-14-233, March 6, 2014, p. 5, at http://www.gao.gov/assets/, GAO-14-233, March 6, 2014, p. 5, at http://www.gao.gov/assets/
670/661428.pdf. 670/661428.pdf.
6467 SBA, SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458. “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458.
6568 SBA, SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458. 69 13 C.F.R. §120.971(d). 70 SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2011,” September 30, 2011, at https://www.sba.gov/sites/default/files/5000-1223.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2012,” September 28, 2012, at https://www.sba.gov/sites/default/files/lender_notices/5000-1253.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2013,” September 24, 2013, at https://www.sba.gov/sites/default/files/5000-1288.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2014,” September 18, 2014, at https://www.sba.gov/sites/default/files/lender_notices/5000-1318.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2015,” September 28, 2015, at https://www.sba.gov/sites/default/files/lender_notices/5000-1352.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2016,” September 16, 2016, at https://www.sba.gov/sites/default/files/lender_notices/ Congressional Research Service 15 Small Business Administration 504/CDC Loan Guaranty Program As mentioned, P.L. 116-260, appropriated $1.918 billion~~“SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458.~~
~~Congressional Research Service~~

14

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~SBA Fees~~
~~The SBA is authorized to charge CDCs five fees to help recoup the SBA’s expenses: a guaranty~~
~~fee, servicing fee, funding fee, development company fee, and participation fee.~~
~~Guaranty Fee~~
~~The SBA is authorized to charge CDCs a one-time, up-front guaranty fee of 0.5% of the~~
~~debenture.66 The SBA elected not to charge this fee in FY2009-FY2011, and FY2016-FY2018.~~
~~The SBA charged this fee in FY2012-FY2015, FY2019-FY2020, at the outset of FY2021, and in~~
~~FY2022.67~~
~~As mentioned, P.L. 116-260, appropriated $1.918 bil ion~~ for SBA loan enhancements, including for SBA loan enhancements, including
the waiver of the 504/CDC guaranty fee from the date of enactment (December 27, 2020) through the waiver of the 504/CDC guaranty fee from the date of enactment (December 27, 2020) through
September 30, 2021. September 30, 2021.
Servicing Fee
The SBA is authorized to charge CDCs an ongoing servicing fee paid monthly by the borrower The SBA is authorized to charge CDCs an ongoing servicing fee paid monthly by the borrower
and adjusted and adjusted ~~annual y~~annually based on the date the loan was approved. By statute, the fee is the lesser of based on the date the loan was approved. By statute, the fee is the lesser of
the amount necessary to cover the estimated cost of purchasing and guaranteeing debentures the amount necessary to cover the estimated cost of purchasing and guaranteeing debentures
under the 504/CDC program or 0.9375% per annum of the unpaid principal balance of the loan.under the 504/CDC program or 0.9375% per annum of the unpaid principal balance of the loan.6871
The SBA’s servicing fee for FY2022 is 0.2475% of the unpaid principal balance for regular The SBA’s servicing fee for FY2022 is 0.2475% of the unpaid principal balance for regular
504/CDC loans and 0.2590% for 504 refinancing loans.504/CDC loans and 0.2590% for 504 refinancing loans.69

~~66 13 C.F.R. §120.971(d).~~
~~67 SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2011,” September 30, 2011, at~~
~~https://www.sba.gov/sites/default/files/5000-1223.pdf; SBA, “ SBA Information Notice: 7(a) and 504 Fees Effective On~~
~~October 1, 2012,” September 28, 2012, at https://www.sba.gov/sites/default/files/lender_notices/5000-1253.pdf; SBA,~~
~~“SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2013,” September 24, 2013, at~~
~~https://www.sba.gov/sites/default/files/5000-1288.pdf; SBA, “ SBA Information Notice: 7(a) and 504 Fees Effective On~~
~~October 1, 2014,” September 18, 2014, at https://www.sba.gov/sites/default/files/lender_notices/5000-1318.pdf; SBA,~~
~~“SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2015,” September 28, 2015, at~~
~~https://www.sba.gov/sites/default/files/lender_notices/5000-1352.pdf; SBA, “ SBA Information Notice: 7(a) and 50 4~~
~~Fees Effective On October 1, 2016,” September 16, 2016, at https://www.sba.gov/sites/default/files/lender_notices/~~
~~5000-1389.fees_for_FY_2017.pdf; SBA, “ SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2017,”~~
~~August 15, 2017, at https://www.sba.gov/sites/default/files/lender_notices/5000-1954.pdf; SBA, “ SBA Information~~
~~Notice: 504 Fees Effective On October 1, 2018,” August 14, 2018, at https://www.sba.gov/document/information-~~
~~notice-5000-180011-504-fees-effective-october-1-2018; SBA, “ SBA~~ 72 Funding Fee The SBA charges CDCs a funding fee, not to exceed 0.25% of the debenture, to cover costs incurred by the trustee, fiscal agent, and transfer agent.73 Development Company Fee For SBA loans approved after September 30, 1996, the SBA charges CDCs an annual development company fee of 0.125% of the debenture’s outstanding principal balance. The fee must be paid from the servicing fees collected by the CDC and cannot be paid from any additional fees imposed on the borrower.74 Participation Fee The SBA charges third-party lenders a one-time participation fee of 0.5% of the senior mortgage loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996.75 The fee may be paid by the third-party lender, CDC, or borrower. 5000-1389.fees_for_FY_2017.pdf; SBA, “SBA Information Notice: 7(a) and 504 Fees Effective On October 1, 2017,” August 15, 2017, at https://www.sba.gov/sites/default/files/lender_notices/5000-1954.pdf; SBA, “SBA Information Notice: 504 Fees Effective On October 1, 2018,” August 14, 2018, at https://www.sba.gov/document/information-notice-5000-180011-504-fees-effective-october-1-2018; SBA, “SBA Information Notice: 504 Fees Effective On Information Notice: 504 Fees Effective On
October 1, 2019,” September 16, 2019, at https://www.sba.gov/sites/default/files/resource_files/October 1, 2019,” September 16, 2019, at https://www.sba.gov/sites/default/files/resource_files/
504_Fees_Effective_October_1_2019_0.pdf; SBA, “504_Fees_Effective_October_1_2019_0.pdf; SBA, “ SBA Information Notice: 504 Fees Effective During Fiscal Year SBA Information Notice: 504 Fees Effective During Fiscal Year
2021,” September 15, 2020, at https://www.sba.gov/document/information-notice-5000-20045-sba-information-notice; 2021,” September 15, 2020, at https://www.sba.gov/document/information-notice-5000-20045-sba-information-notice;
and SBA,and SBA, “SBA Information Notice: 504 Fees Effective During Fiscal Year 2022,” September 7, 2021, at “SBA Information Notice: 504 Fees Effective During Fiscal Year 2022,” September 7, 2021, at
https://www.sba.gov/document/information-notice-5000-818642-504-fees-effective-during-fiscal-year-2022 https://www.sba.gov/document/information-notice-5000-818642-504-fees-effective-during-fiscal-year-2022
(hereinafter SBA, “(hereinafter SBA, “ SBA Information Notice: 504 Fees Effective During Fiscal Year 2022”). SBA Information Notice: 504 Fees Effective During Fiscal Year 2022”).
6871 15 U.S.C. 15 U.S.C. §697(b)(7)(A)(i); and 13 C.F.R.§697(b)(7)(A)(i); and 13 C.F.R. §120.971(d). §120.971(d).
6972 SBA, SBA, “SBA“SBA Information Notice: 504 Fees Effective During FiscalInformation Notice: 504 Fees Effective During Fiscal Year 2022.” Year 2022.”
~~T he~~The SBA’s SBA’s annual servicing fee wasannual servicing fee was 0.749% in FY2011, 0.9375% in FY20120.749% in FY2011, 0.9375% in FY2012 -FY2015, 0.914% for regular 504/CDC -FY2015, 0.914% for regular 504/CDC
loans and 0.958% for 504/CDC refinancing loans in FY2016, 0.697% for regular 504/CDC loans and 0.731% for loans and 0.958% for 504/CDC refinancing loans in FY2016, 0.697% for regular 504/CDC loans and 0.731% for
504/CDC refinancing loans in FY2017, 0.642% for regular 504/CDC loans and 0.682% for 504/CDC refinancing loans 504/CDC refinancing loans in FY2017, 0.642% for regular 504/CDC loans and 0.682% for 504/CDC refinancing loans
in FY2018, 0.368% for regular 504/CDC loans and 0.395% for 504/CDC refinancing loans in in FY2018, 0.368% for regular 504/CDC loans and 0.395% for 504/CDC refinancing loans in ~~FY201 9~~FY2019; and 0.3205% ; and 0.3205%
for regularfor regular 504/CDC loans and 0.3220% for 504/CDC refinancing loans in 504/CDC loans and 0.3220% for 504/CDC refinancing loans in ~~FY20 20.~~
~~Congressional Research Service~~

15

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~Funding Fee~~
~~The SBA charges CDCs a funding fee, not to exceed 0.25% of the debenture, to cover costs~~
~~incurred by the trustee, fiscal agent, and transfer agent.70~~
~~Development Company Fee~~
~~For SBA loans approved after September 30, 1996, the SBA charges CDCs an annual~~
~~development company fee of 0.125% of the debenture’s outstanding principal balance. The fee~~
~~must be paid from the servicing fees collected by the CDC and cannot be paid from any~~
~~additional fees imposed on the borrower.71~~
~~Participation Fee~~
~~The SBA charges third-party lenders a one-time participation fee of 0.5% of the senior mortgage~~
~~loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996.72~~
~~The fee may be paid by the third-party lender, CDC, or borrower.~~
~~CDC Fees~~
~~CDCs are al owed~~FY2020. 73 13 C.F.R. §120.971(e). 74 13 C.F.R. §120.972. 75 13 C.F.R. §120.972. When there are different liens on a property, the senior lien must be satisfied before junior liens in the event of a default. Congressional Research Service 16 Small Business Administration 504/CDC Loan Guaranty Program CDC Fees CDCs are allowed to charge borrowers a processing (or packaging) fee, closing fee, servicing fee, to charge borrowers a processing (or packaging) fee, closing fee, servicing fee,
late fee, assumption fee, CSA fee, other agent fees, and underwriters’ fee. late fee, assumption fee, CSA fee, other agent fees, and underwriters’ fee.
Processing (or Packaging) Fee
The CDC is The CDC is ~~al owed~~allowed to charge borrowers a processing (or packaging) fee of up to 1.5% of the net to charge borrowers a processing (or packaging) fee of up to 1.5% of the net
debenture proceeds. Two-thirds of this fee is considered earned and may be collected by the CDC debenture proceeds. Two-thirds of this fee is considered earned and may be collected by the CDC
when the SBA issues an Authorization for the Debenture. The portion of the processing fee paid when the SBA issues an Authorization for the Debenture. The portion of the processing fee paid
by the borrower may be reimbursed from the debenture proceeds.by the borrower may be reimbursed from the debenture proceeds.7376
As mentioned, P.L. 116-260, appropriated $1.918 As mentioned, P.L. 116-260, appropriated $1.918 ~~bil ion~~billion for SBA loan enhancements, including for SBA loan enhancements, including
the waiver of the 504/CDC processing fee from the date of enactment (December 27, 2020) the waiver of the 504/CDC processing fee from the date of enactment (December 27, 2020)
through September 30, 2021. The SBA through September 30, 2021. The SBA ~~wil~~ will reimburse CDCs 1.5% of the net debenture proceeds reimburse CDCs 1.5% of the net debenture proceeds
for not imposing the processing fee. for not imposing the processing fee.
Closing Fee
The CDC is also The CDC is also ~~al owed~~allowed to charge “a reasonable closing fee sufficient to reimburse it for the to charge “a reasonable closing fee sufficient to reimburse it for the
expenses of its in-house or outside legal counsel, and other expenses of its in-house or outside legal counsel, and other ~~miscel aneous~~miscellaneous closing costs.” closing costs.”7477 Up to Up to
$2,500 in closing costs may be financed out of the debenture proceeds.$2,500 in closing costs may be financed out of the debenture proceeds.75

~~70 13 C.F.R. §120.971(e).~~
~~71 13 C.F.R. §120.972.~~
~~72 13 C.F.R. §120.972. When there are different liens on a property, the senior lien must be satisfied before junior liens~~
~~in the event of a default.~~
~~73 13 C.F.R. §120.971(a)(1).~~
~~74 13 C.F.R. §120.971(a)(2).~~
~~75 13 C.F.R. §120.883(e).~~
~~Congressional Research Service~~

16

~~Small Business Administration 504/CDC Loan Guaranty Program~~
78
Servicing Fee
CDCs can also charge an annual servicing fee of at least 0.625% per annum and no more than 2% CDCs can also charge an annual servicing fee of at least 0.625% per annum and no more than 2%
per annum on the unpaid balance of the loan as determined at five-year anniversary intervals. A per annum on the unpaid balance of the loan as determined at five-year anniversary intervals. A
servicing fee greater than 1.5% for rural areas and 1% elsewhere requires the SBA’s prior written servicing fee greater than 1.5% for rural areas and 1% elsewhere requires the SBA’s prior written
approval, based on evidence of substantial need. The servicing fee may be paid only from loan approval, based on evidence of substantial need. The servicing fee may be paid only from loan
payments received. The fees may be accrued without interest and collected from the CSA when payments received. The fees may be accrued without interest and collected from the CSA when
the payments are made. CSAs are entities that receive and disburse funds among the various the payments are made. CSAs are entities that receive and disburse funds among the various
parties involved in 504/CDC financing under a master servicing agent agreement with the SBA.parties involved in 504/CDC financing under a master servicing agent agreement with the SBA.7679
Late Fee and Assumption Fee
Loan payments received after the 15th of each month may be subject to a late payment fee of 5% Loan payments received after the 15th of each month may be subject to a late payment fee of 5%
of the late payment or $100, whichever is greater. Late fees of the late payment or $100, whichever is greater. Late fees ~~wil~~ will be collected by the CSA on be collected by the CSA on
behalf of the CDC. Also, with the SBA’s written approval, CDCs may charge an assumption fee behalf of the CDC. Also, with the SBA’s written approval, CDCs may charge an assumption fee
not to exceed 1% of the outstanding principal balance of the loan being assumed.not to exceed 1% of the outstanding principal balance of the loan being assumed.7780
Central Servicing Agent Fee
CSAs are CSAs are ~~al owed~~allowed to charge an initiation fee on each loan and an ongoing monthly servicing fee to charge an initiation fee on each loan and an ongoing monthly servicing fee
under the terms of the master servicing agreement. The current ongoing CSA monthly servicing under the terms of the master servicing agreement. The current ongoing CSA monthly servicing
76 13 C.F.R. §120.971(a)(1). 77 13 C.F.R. §120.971(a)(2). 78 13 C.F.R. §120.883(e). 79 13 C.F.R. §120.971(a)(3). 80 13 C.F.R. §120.971(a)(4); 13 C.F.R. §120.971(a)(5); and SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 192. Congressional Research Service 17 Small Business Administration 504/CDC Loan Guaranty Program fee is 0.1% per annum of the loan amount.81~~fee is 0.1% per annum of the loan amount.78~~ Also, “agent fees and charges necessary to market Also, “agent fees and charges necessary to market
and service debentures and certificates may be assessed to the borrower or the investor.”and service debentures and certificates may be assessed to the borrower or the investor.”7982 CDCs CDCs
must review the agent’s services and related fees “to determine if the fees are necessary and must review the agent’s services and related fees “to determine if the fees are necessary and
reasonable when there is an indication from a third party that an agent’s fees might be excessive, reasonable when there is an indication from a third party that an agent’s fees might be excessive,
or when an applicant complains about the fees charged by an agent.”or when an applicant complains about the fees charged by an agent.”8083 In cases in which fees In cases in which fees
appear to be unreasonable, CDCs “should contact” the SBA and if a SBA investigation appear to be unreasonable, CDCs “should contact” the SBA and if a SBA investigation
determines that the fee is excessive, the agent “must reduce the fee to an amount SBA deems determines that the fee is excessive, the agent “must reduce the fee to an amount SBA deems
reasonable, refund any sum in excess of that amount to the applicant, and refrain from charging or reasonable, refund any sum in excess of that amount to the applicant, and refrain from charging or
collecting from the applicant any funds in excess of the amount SBA deems reasonable.”collecting from the applicant any funds in excess of the amount SBA deems reasonable.”8184
Underwriters’ Fee
Borrowers are also charged an up-front underwriters’ fee of 0.4% for 20-year loans and 0.375% Borrowers are also charged an up-front underwriters’ fee of 0.4% for 20-year loans and 0.375%
for 10-year loans. The underwriters’ fee is paid by the borrower to the underwriter.for 10-year loans. The underwriters’ fee is paid by the borrower to the underwriter.8285 Underwriters Underwriters
are approved by the SBAare approved by the SBA to form debenture pools and arrange for the sale of certificates. to form debenture pools and arrange for the sale of certificates.
Fee Subsidies
The SBA was provided more than $1.1 The SBA was provided more than $1.1 ~~bil ion~~billion in funding in 2009 and 2010 to subsidize the in funding in 2009 and 2010 to subsidize the
504/CDC program’s third-party participation fee and CDC processing fee, subsidize the SBA’s 504/CDC program’s third-party participation fee and CDC processing fee, subsidize the SBA’s

~~76 13 C.F.R. §120.971(a)(3).~~
~~77 13 C.F.R. §120.971(a)(4); 13 C.F.R. §120.971(a)(5); and SBA, “SOP 50 10 6: Lender and Development Company~~
~~Loan Programs,” p. 192.~~
~~78 SBA, “Servicing Loan Agreement,” at https://www.sba.gov/sites/default/files/forms/SBA_Form_1506.pdf.~~
~~79 13 C.F.R. §120.971(c).~~
~~80 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196.~~
~~81 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196.~~
~~82 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 192.~~
~~Congressional Research Service~~

17

~~Small Business Administration 504/CDC Loan Guaranty Program~~

7(a) program’s guaranty fee, and increase the 7(a) program’s maximum loan guaranty percentage 7(a) program’s guaranty fee, and increase the 7(a) program’s maximum loan guaranty percentage
from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90%
for for al all standard 7(a) loans.standard 7(a) loans.8386 The last extension, P.L. 111-322, the Continuing Appropriations and The last extension, P.L. 111-322, the Continuing Appropriations and
Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies
and the 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011, or until and the 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011, or until
funding provided by the funding provided by the ~~Smal~~ Small Business Jobs Act of 2010 for this purpose was exhausted (which Business Jobs Act of 2010 for this purpose was exhausted (which
occurred on January 3, 2011).occurred on January 3, 2011).84
~~The Obama Administration argued that additional funding for the SBA’s loan guaranty programs,~~
~~including the 504/CDC program’s fee subsidies, improved the smal business lending~~
~~environment, increased both the number and amount of SBA guaranteed loans, and supported~~
~~“tens of thousands of smal businesses and supported hundreds of thousands of jobs.”85 Critics~~
~~contended that smal business tax reduction, reform of financial credit market regulation, and~~
~~federal fiscal restraint are better means to assist smal business economic growth and job~~
~~creation.86~~
~~As mentioned, the CARES Act, among other provisions, appropriated $17 bil ion for six-month~~
~~payment relief for existing 7(a), 504/CDC, and Microloan borrowers in a regular servicing status~~
~~(i.e., fully disbursed) beginning with the next payment due date. Loans already on deferment~~
~~received six months of SBA payments beginning with the first payment after the deferral period.~~
~~Loans in a regular servicing status up to six months after enactment (until September 27, 2020)~~
~~were also eligible for six monthly payments of debt relief.87~~

8387 81 SBA, “Servicing Loan Agreement,” at https://www.sba.gov/sites/default/files/forms/SBA_Form_1506.pdf. 82 13 C.F.R. §120.971(c). 83 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196. 84 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196. 85 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 192. 86 P.L. 111-5, the ARRA, provided $375 million for fee subsidies P.L. 111-5, the ARRA, provided $375 million for fee subsidies and the 7(a) program’s 90% guaranty for all standard and the 7(a) program’s 90% guaranty for all standard
7(a) loans. ARRA’s7(a) loans. ARRA’s ~~funding~~ funding for these purposes wasfor these purposes was exhausted on November 23, 2009. P.L. 111-118, the Department of exhausted on November 23, 2009. P.L. 111-118, the Department of
Defense Appropriations Act, 2010, enacted on December 19, 2009, provided $125 million to extend the fee subsidies Defense Appropriations Act, 2010, enacted on December 19, 2009, provided $125 million to extend the fee subsidies
and 90% and 90% ~~guarant y~~guaranty through February 28, 2010. P.L. 111-144, the through February 28, 2010. P.L. 111-144, the ~~T emporary~~Temporary Extension Act of 2010, enacted on March Extension Act of 2010, enacted on March
2, 2010, provided $60 million to extend 2, 2010, provided $60 million to extend ~~th e~~the fee subsidies fee subsidies and 90% guaranty through March 28, 2010. P.L. 111-150, an and 90% guaranty through March 28, 2010. P.L. 111-150, an
act to extend the Small Businessact to extend the Small Business Loan Guarantee Program, enacted on March 26, 2010, authorized theLoan Guarantee Program, enacted on March 26, 2010, authorized the use of $40 use of $40
million in SBA-appropriated fundsmillion in SBA-appropriated funds to extend the fee subsidiesto extend the fee subsidies and 90% guaranty through April 30, 2010. P.L. 111-157, and 90% guaranty through April 30, 2010. P.L. 111-157,
the Continuing Extension Act of 2010, the Continuing Extension Act of 2010, ~~enact ed~~enacted on April 15, 2010, provided $80 million to extend the fee subsides on April 15, 2010, provided $80 million to extend the fee subsides and and
90% guaranty through May 31, 2010. P.L. 111-240, the Small Business90% guaranty through May 31, 2010. P.L. 111-240, the Small Business ~~Jobs~~ Jobs Act of 2010, enacted on September 27, Act of 2010, enacted on September 27,
2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee subsidies2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee subsidies ~~and~~ and 90% 90%
guaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surfaceguaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface ~~T ransportation~~ Transportation
Extensions Act, 2011, authorized the SBA to continue the fee subsidiesExtensions Act, 2011, authorized the SBA to continue the fee subsidies ~~and~~ and 90% guaranty through March 4, 2011, or 90% guaranty through March 4, 2011, or
until the fundinguntil the funding provided by the Small Businessprovided by the Small Business ~~Jobs~~ Jobs Act of 2010 for these purposes wasAct of 2010 for these purposes was exhausted (which occurred exhausted (which occurred
on January 3, 2011). on January 3, 2011).
8487 On January 3, 2011, the SBA On January 3, 2011, the SBA announced it had formed a SBAannounced it had formed a SBA Loan QueueLoan Queue for loan applicants shouldfor loan applicants should any funding any funding
with the enhancements become available from loan cancellations. with the enhancements become available from loan cancellations. ~~T ypically~~Typically, 7% to 10% , 7% to 10% ~~o f~~of previously approved SBA previously approved SBA
loans are later canceled by the borrower or lender and are not disbursedloans are later canceled by the borrower or lender and are not disbursed for a variety of reasons. Seefor a variety of reasons. See SBA,SBA, “ “Jobs Act Jobs Act
Supported More Supported More ~~T han~~Than $12 Billion in SBA $12 Billion in SBA Lending to SmallLending to Small ~~Businesses~~ Businesses in Just in Just ~~T hree~~Three Months,” January 3, 2011, Months,” January 3, 2011, at at
https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-three-months. https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-three-months.
~~85 SBA, “Statement from Administrator Mills on Continuing Support for Small Businesses through SBA Recovery~~
~~Programs,” February 19, 2010, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/~~
~~statement -administrator-mills-continuing-support-small-businesses-through-sba-recovery-programs; and SBA, “ SBA~~
~~Recovery Lending Extended T hrough April 30,” March 29, 2010, at https://www.sba.gov/about -sba/sba-newsroom/~~
~~press-releases-media-advisories/sba-recovery-lending-extended-through-april-30.~~
~~86 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21,~~
~~2009; and NFIB, “ Government Spending,” Washington, DC. Also, see NFIB, “ Government Spending: Small~~
~~Businesses Have a Bottom Line – Government Should, T oo,” at https://www.nfib.com/content/issues/economy/~~
~~government -spending-small-businesses-have-a-bottom-line-government-should-too-49051/.~~
~~87 Community Advantage Recovery Loans in a regular servicing status (i.e., fully disbursed) up until October 1, 2020,~~
~~were eligible for six months of loan payments. See SBA, “ Guidance on the Implementation of the Extension of the~~
~~Section 1112 Debt Relief Program for the 7(a) and 504 Loan Programs, as Authorized by Section 325 of the Economic~~
~~Congressional Research Service~~

18

~~link to page 23 link to page 23~~ ~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~In addition, P.L. 116-260, the Economic Aid to Hard-Hit Smal Businesses, Nonprofits, and~~
~~Venues Act (Division N, Title III of the Consolidated Appropriations Act, 2021), among other~~
~~provisions, appropriated $3.5 bil ion to resume monthly payment relief for 7(a), 504/CDC, and~~
~~Microloan borrowers, capped at $9,000 per month per borrower. Payments are dependent on the~~
~~availability of funds, when the loan was disbursed, the type of loan received, and the business’s~~
~~industry. The act also waived the 504/CDC loan guarantee fee and the CDC processing fee in~~
~~FY2021.~~
~~Program Statistics~~
~~Loan Volume~~
~~Table 2~~ ~~shows the number and amount of 504/CDC loans that the SBA approved in FY2005-~~
~~FY2021 and the number and amount of 504/CDC loans after cancel ations and other~~
~~modifications are taken into account in FY2005-FY2019. Each year, 5% to 15% of SBA-~~
~~approved 504/CDC loans are subsequently canceled for a variety of reasons, typical y by the~~
~~borrower (e.g., funds are no longer needed or there was a change in ownership).~~
~~As the data indicate, the number and amount of 504/CDC loans declined in FY2008 and FY2009.~~
~~The most likely causes for the decline were decreased smal business demand for capital during~~
~~the recession; difficulties in secondary credit markets, especial y from October 2008 to February~~
~~2009; and a tightening of smal business credit lending standards.~~
~~The number and amount of 504/CDC loans increased during FY2010 and FY2011 and reached~~
~~prerecession levels in FY2012. The SBA attributed the increase in FY2010 and FY2011 to the~~
~~continuation of 504/CDC fee subsidies, which were in place through most of FY2010 and the first~~
~~quarter of FY2011.88~~
~~The continuing economic recovery, which contributed to increased demand for smal business~~
~~loans general y, and the temporary two-year expansion of the types of projects eligible for~~
~~504/CDC program refinancing of existing commercial debt (through September 27, 2012) under~~
~~P.L. 111-240, the Smal Business Jobs Act of 2010, most likely also contributed to the program’s~~
~~increased loan volume in FY2011 and FY2012 (see Table 3).89~~
~~As expected, given the expiration of the temporary refinancing expansion, 504/CDC loan volume~~
~~declined in FY2013 and FY2014. The program’s loan volume has general y increased since then.~~

~~Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” Procedural Notice 5000-20079, January 19, 2021, at~~
~~https://www.sba.gov/document/procedural-notice-5000-20079-guidance-implementation-extension-section-1112-debt-~~
~~relief-program-7a-504-loan-programs-authorized.~~
~~88 SBA, Press Office, “Recovery Loan Incentives Spurred Continued Rebound in SBA Lending in FY2010 ,” October 4,~~
~~2010, at https://www.sba.gov/content/recovery-loan-incentives-spurred-continued-rebound-sba-lending-fy2010; and~~
~~SBA, “ Jobs Act Supported More T han $12 Billio n in SBA Lending to Small Businesses in Just T hree Months,”~~
~~January 3, 2011, at https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-~~
~~three-months.~~
~~89 T he expanded 504/CDC refinancing program became operational on February 17, 2011, began accepting loan~~
~~applications on February 28, 2011, and ended on September 27, 2012. See SBA, “ T emporary 504 Loan Refinancing for~~
~~Eligible Small Business Assets Under the Jobs Act : Fact Sheet,” at https://thebusinesstimes.com/504-loan-refinancing-~~
~~program/.~~
~~Congressional Research Service~~

19

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~Table 2. Number and Amount of 504/CDC Loans, FY2005-FY2021~~
~~($ amounts in bil ions)~~
~~Amount of the~~
~~Number (after~~
~~Amount of the~~
~~Debentures (after~~
~~Number~~
~~full~~
~~Debentures~~
~~modifications and~~
~~Fiscal Year~~
~~Approved~~
~~cancellations)~~
~~Approved~~
~~cancellations)~~
~~2005~~
~~9,194~~
~~7,672~~
~~$5.05~~
~~$4.22~~
~~2006~~
~~9,943~~
~~8,325~~
~~$5.73~~
~~$4.77~~
~~2007~~
~~10,669~~
~~8,941~~
~~$6.31~~
~~$5.22~~
~~2008~~
~~8,883~~
~~7,328~~
~~$5.29~~
~~$4.25~~
Congressional Research Service 18 Small Business Administration 504/CDC Loan Guaranty Program The Obama Administration argued that additional funding for the SBA’s loan guaranty programs, including the 504/CDC program’s fee subsidies, improved the small business lending environment, increased both the number and amount of SBA guaranteed loans, and supported “tens of thousands of small businesses and supported hundreds of thousands of jobs.”88 Critics contended that small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint are better means to assist small business economic growth and job creation.89 As mentioned, the CARES Act, among other provisions, appropriated $17 billion for six-month payment relief for existing 7(a), 504/CDC, and Microloan borrowers in a regular servicing status (i.e., fully disbursed) beginning with the next payment due date. Loans already on deferment received six months of SBA payments beginning with the first payment after the deferral period. Loans in a regular servicing status up to six months after enactment (until September 27, 2020) were also eligible for six monthly payments of debt relief.90 In addition, P.L. 116-260, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act, 2021), among other provisions, appropriated $3.5 billion to resume monthly payment relief for 7(a), 504/CDC, and Microloan borrowers, capped at $9,000 per month per borrower. Payments are dependent on the availability of funds, when the loan was disbursed, the type of loan received, and the business’s industry.91 The act also waived the 504/CDC loan guarantee fee and the CDC processing fee in FY2021. 88 SBA, “Statement from Administrator Mills on Continuing Support for Small Businesses through SBA Recovery Programs,” February 19, 2010, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/statement-administrator-mills-continuing-support-small-businesses-through-sba-recovery-programs; and SBA, “SBA Recovery Lending Extended Through April 30,” March 29, 2010, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/sba-recovery-lending-extended-through-april-30. 89 Susan Eckerly, “NFIB Responds to President’s Small Business Lending Initiatives,” Washington, DC, October 21, 2009; and NFIB, “Government Spending,” Washington, DC. Also, see NFIB, “Government Spending: Small Businesses Have a Bottom Line – Government Should, Too,” at https://www.nfib.com/content/issues/economy/government-spending-small-businesses-have-a-bottom-line-government-should-too-49051/. 90 Community Advantage Recovery Loans in a regular servicing status (i.e., fully disbursed) up until October 1, 2020, were eligible for six months of loan payments. See SBA, “Guidance on the Implementation of the Extension of the Section 1112 Debt Relief Program for the 7(a) and 504 Loan Programs, as Authorized by Section 325 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” Procedural Notice 5000-20079, January 19, 2021, at https://www.sba.gov/document/procedural-notice-5000-20079-guidance-implementation-extension-section-1112-debt-relief-program-7a-504-loan-programs-authorized. 91 P.L. 116-260 authorized a second round of monthly payments for covered loans approved on or before September 27, 2020, even if the loan was not fully disbursed on or before September 27, 2020. Existing 7(a) and 504/CDC loans that were previously deemed ineligible for monthly payments because they had not been fully disbursed on or before September 27, 2020 (referred to as newly eligible first round loans), received three monthly payments (instead of six as authorized under the CARES Act). Existing 7(a) and 504/CDC loans (except for Community Advantage Pilot Program loans) approved before March 27, 2020, received two additional monthly payments. Businesses in specified economically hard-hit industries (food service and accommodation; arts, entertainment and recreation; education; and laundry and personal care services) received an additional three monthly payments (a total of five additional monthly payments). Existing Community Advantage loans and Microloans approved before March 27, 2020, received five (instead of eight) additional monthly payments. New 7(a), 504/CDC, and Microloans approved from February 1, 2021, through September 30, 2021, received three (instead of six) additional monthly payments. No second round payments were provided to covered loans approved from March 28, 2020, through September 26, 2020. These loans were eligible for either three or six monthly payments under round one, depending on their disbursement date. See SBA, “Adjustment to Number of Months of Section 1112 Payments in the 7(a), 504 and Microloan Programs Due to Insufficiency of Funds,” SBA Procedural Notice, 5000- Congressional Research Service 19 link to page 23 link to page 24 Small Business Administration 504/CDC Loan Guaranty Program Program Statistics Loan Volume Table 2 shows the number and amount of 504/CDC loans that the SBA approved in FY2005-FY2021 and the number and amount of 504/CDC loans after cancellations and other modifications are taken into account in FY2005-FY2019. Each year, 5% to 15% of SBA-approved 504/CDC loans are subsequently canceled for a variety of reasons, typically by the borrower (e.g., funds are no longer needed or there was a change in ownership). As the data indicate, the number and amount of 504/CDC loans declined in FY2008 and FY2009. The most likely causes for the decline were decreased small business demand for capital during the recession; difficulties in secondary credit markets, especially from October 2008 to February 2009; and a tightening of small business credit lending standards. The number and amount of 504/CDC loans increased during FY2010 and FY2011 and reached prerecession levels in FY2012. The SBA attributed the increase in FY2010 and FY2011 to the continuation of 504/CDC fee subsidies, which were in place through most of FY2010 and the first quarter of FY2011.92 The continuing economic recovery, which contributed to increased demand for small business loans generally, and the temporary two-year expansion of the types of projects eligible for 504/CDC program refinancing of existing commercial debt (through September 27, 2012) under P.L. 111-240, the Small Business Jobs Act of 2010, most likely also contributed to the program’s increased loan volume in FY2011 and FY2012 (see Table 3).93 As expected, given the expiration of the temporary refinancing expansion, 504/CDC loan volume declined in FY2013 and FY2014. The program’s loan volume has generally increased since then. Table 2. Number and Amount of 504/CDC Loans, FY2005-FY2021 ($ amounts in billions) Amount of the Number (after Amount of the Debentures (after Number full Debentures modifications and Fiscal Year Approved cancellations) Approved cancellations) 2005 9,194 7,672 $5.05 $4.22 2006 9,943 8,325 $5.73 $4.77 2007 10,669 8,941 $6.31 $5.22 2008 8,883 7,328 $5.29 $4.25 20095, February 16, 2021, at https://www.sba.gov/document/procedural-notice-5000-20095-adjustment-number-months-section-1112-payments-7a-504-microloan-programs-due-insufficiency-funds. 92 SBA, Press Office, “Recovery Loan Incentives Spurred Continued Rebound in SBA Lending in FY2010,” October 4, 2010, at https://www.sba.gov/content/recovery-loan-incentives-spurred-continued-rebound-sba-lending-fy2010; and SBA, “Jobs Act Supported More Than $12 Billion in SBA Lending to Small Businesses in Just Three Months,” January 3, 2011, at https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-three-months. 93 The expanded 504/CDC refinancing program became operational on February 17, 2011, began accepting loan applications on February 28, 2011, and ended on September 27, 2012. See SBA, “Temporary 504 Loan Refinancing for Eligible Small Business Assets Under the Jobs Act: Fact Sheet,” at https://thebusinesstimes.com/504-loan-refinancing-program/. Congressional Research Service 20 Small Business Administration 504/CDC Loan Guaranty Program Amount of the Number (after Amount of the Debentures (after Number full Debentures modifications and Fiscal Year Approved cancellations) Approved cancellations) 2009 2009
6,608 6,608
5,471 5,471
$3.83 $3.83
$3.09 $3.09
2010 2010
7,833 7,833
6,642 6,642
$4.47 $4.47
$3.68 $3.68
2011 2011
8,015 8,015
6,913 6,913
$4.99 $4.99
$4.19 $4.19
2012 2012
9,594 9,594
8,399 8,399
$7.28 $7.28
$6.34 $6.34
2013 2013
7,708 7,708
6,626 6,626
$5.23 $5.23
$4.33 $4.33
2014 2014
5,885 5,885
5,246 5,246
$4.20 $4.20
$3.70 $3.70
2015 2015
5,787 5,787
5,313 5,313
$4.30 $4.30
$3.94 $3.94
2016 2016
5,938 5,938
5,557 5,557
$4.74 $4.74
$4.94 $4.94
2017 2017
6,218 6,218
5,925 5,925
$5.01 $5.01
$4.23 $4.23
2018 2018
5,874 5,874
5,774 5,774
$4.75 $4.75
$4.38 $4.38
2019 2019
6,099 6,099
6,006 6,006
$4.96 $4.96
$4.89 $4.89
2020 2020
7,119 7,119
NA NA
$5.83 $5.83
NA NA
2021 2021
9,676 9,676
NA NA
$8.22 $8.22
NA NA
Source: U.S. U.S. ~~Smal Business~~ Small Business Administration,Administration, Office of CongressionalOffice of Congressional and Legislativeand Legislative Affairs,Affairs, “WDS Report “WDS Report
Amount and Count Summary,Amount and Count Summary, ~~September~~ September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,” 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,”
October 18, 2018; and U.S. October 18, 2018; and U.S. ~~Smal~~ Small Business Administration,Business Administration, “SBA Lending Statistics for Major Programs“SBA Lending Statistics for Major Programs (as of (as of
SeptemberSeptember 30, 2021),” at https://www.sba.gov/document/report-2021-weekly-lending-reports. 30, 2021),” at https://www.sba.gov/document/report-2021-weekly-lending-reports.
Table 3. Number and Amount of 504/CDC Refinance Loans,
FY2011, FY2012, FY2016-FY2021
($ amounts in ($ amounts in ~~mil ions~~millions) )
Amount of the
Debentures
Amount of the
(after
Number
Number (after
Debentures
modifications and
Fiscal Year
Approved
full cancellations)
Approved
cancellations)
2011 2011
307 307
272 272
$255.3 $255.3
$226.0 $226.0
2012 2012
2,424 2,424
2,119 2,119
$2,268.2 $2,268.2
$2,007.2 $2,007.2
2016 2016
45 45
41 41
$41.4 $41.4
$38.9 $38.9
2017 2017
266 266
244 244
$287.4 $287.4
$262.3 $262.3
2018 2018
181 181
166 166
$154.1 $154.1
$142.7 $142.7
2019 2019
166 166
161 161
$154.8 $154.8
$149.7 $149.7
~~Congressional Research Service~~

20

~~link to page 24~~ ~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~Amount of the~~
~~Debentures~~
~~Amount of the~~
~~(after~~
~~Number~~
~~Number (after~~
~~Debentures~~
~~modifications and~~
~~Fiscal Year~~
~~Approved~~
~~full cancellations)~~
~~Approved~~
~~cancellations)~~
2020 2020
386 386
NA NA
$370.2 $370.2
NA NA
2021 2021
693 693
NA NA
$709.0 $709.0
NA NA
Source: U.S. U.S. ~~Smal Business~~ Small Business Administration,Administration, Office of CongressionalOffice of Congressional and Legislativeand Legislative Affairs,Affairs, “WDS Report “WDS Report
Amount and Count Summary,Amount and Count Summary, ~~September~~ September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,” 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,”
October 18, 2018; and U.S. October 18, 2018; and U.S. ~~Smal~~ Small Business Administration,Business Administration, “SBA Lending Statistics“SBA Lending Statistics for Major Programsfor Major Programs (as of (as of
SeptemberSeptember 30, 2021),” at https://www.sba.gov/document/report-2021-weekly-lending-reports. 30, 2021),” at https://www.sba.gov/document/report-2021-weekly-lending-reports.
Congressional Research Service 21 link to page 25 Small Business Administration 504/CDC Loan Guaranty Program Appropriations for Subsidy Costs
The SBA’s goal is to achieve a zero subsidy rate for its loan guaranty programs. A zero subsidy The SBA’s goal is to achieve a zero subsidy rate for its loan guaranty programs. A zero subsidy
rate occurs when the SBA’s loan guaranty programs generate sufficient revenue through fees and rate occurs when the SBA’s loan guaranty programs generate sufficient revenue through fees and
recoveries of collateral on purchased (defaulted) loans to not require appropriations to issue new recoveries of collateral on purchased (defaulted) loans to not require appropriations to issue new
loan guarantees. loan guarantees.
As indicated i As indicated in Table 4, fees and recoveries did not generate enough revenue to cover 7(a) loan fees and recoveries did not generate enough revenue to cover 7(a) loan
losses from FY2010 through FY2013, and in FY2020 and FY2021. Appropriations were provided losses from FY2010 through FY2013, and in FY2020 and FY2021. Appropriations were provided
to address the to address the ~~shortfal s~~shortfalls. .
The 504/CDC loan guaranty program experienced loan losses from FY2012 through FY2015. The 504/CDC loan guaranty program experienced loan losses from FY2012 through FY2015.
Appropriations were provided to address the Appropriations were provided to address the ~~shortfal s~~shortfalls. .
Table 4. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty
Programs, FY2005-FY2022
($ amounts in ($ amounts in ~~mil ions~~millions) )
FY
7(a)
504/CDC
Total Subsidy
2005 2005
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2006 2006
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2007 2007
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2008 2008
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2009 2009
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2010 2010
$80.0 $80.0
$0.0 $0.0
$80.0 $80.0
2011 2011
$80.0 $80.0
$0.0 $0.0
$80.0 $80.0
2012 2012
$139.4 $139.4
$67.7 $67.7
$207.1 $207.1
2013 2013
$213.8 $213.8
$102.5 $102.5
$316.3 $316.3
2014 2014
$0.0 $0.0
$107.0 $107.0
$107.0 $107.0
2015 2015
$0.0 $0.0
$45.0 $45.0
$45.0 $45.0
2016 2016
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2017 2017
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2018 2018
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
2019 2019
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
~~Congressional Research Service~~

21

~~Small Business Administration 504/CDC Loan Guaranty Program~~

FY
~~7(a)~~
~~504/CDC~~
~~Total Subsidy~~
2020 2020
$99.0 $99.0
$0.0 $0.0
$99.0 $99.0
2021 2021
$15.0 $15.0
$0.0 $0.0
$15.0 $15.0
2022 request 2022 request
$0.0 $0.0
$0.0 $0.0
$0.0 $0.0
Source: P.L. 108-447, Consolidated Appropriations Act, 2005; P.L. 109-108, the Science, State, Justice, P.L. 108-447, Consolidated Appropriations Act, 2005; P.L. 109-108, the Science, State, Justice,
CommerceCommerce and Related Agencies Appropriations Act, 2006; U.S. and Related Agencies Appropriations Act, 2006; U.S. ~~Smal Business Administration~~ Small Business Administration (SBA), (SBA),
Congressional Budget Justification: FY2008 Annual Performance Report,, p. 17; SBA,p. 17; SBA, FY2010 Congressional Budget
Justification and FY2008 Annual ~~Performance~~ Performance Report,, p. 11; SBA,p. 11; SBA, FY2011 Congressional Budget Justification and FY2009
Annual Performance Report, p. 19; SBA, , p. 19; SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance
Report,, p. 22; SBA, p. 22; SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report,, p. 19; SBA, p. 19; SBA,
FY2014 Congressional Budget Justification and FY2012 Annual Performance Report,, p. 25; SBA, p. 25; SBA, FY2015 Congressional
Budget Justification and FY2013 Annual Performance Report,, p. 24; P.L.p. 24; P.L. 113-235, the Consolidation and Further 113-235, the Consolidation and Further
Continuing AppropriationsContinuing Appropriations Act, 2015; P.L. 114-113, the Consolidated AppropriationsAct, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016, P.L. 115-31, the Act, 2016, P.L. 115-31, the
Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6, Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6,
Congressional Research Service 22 Small Business Administration 504/CDC Loan Guaranty Program the Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriationsthe Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriations Act, 2020; P.L. 116-Act, 2020; P.L. 116-
260, the Consolidated Appropriations Act, 2021; and U.S. 260, the Consolidated Appropriations Act, 2021; and U.S. ~~Smal~~ Small Business Administration,Business Administration, FY2022 Congressional
Justification and FY2020 Annual ~~Performance~~ Performance Report,, p. 8. p. 8.
Notes: The Microloan program also receives The Microloan program also receives a credit subsidy, primarilya credit subsidy, primarily for providing below marketfor providing below market interest interest
rates to Microloan intermediaries.rates to Microloan intermediaries. The subsidies wereThe subsidies were $1.45 $1.45 ~~mil ion~~ million in FY2005, $1.3 in FY2005, $1.3 ~~mil ion~~ million in FY2006 and in FY2006 and
FY2007, $2.0 FY2007, $2.0 ~~mil ion~~ million in FY2008, $8.5 in FY2008, $8.5 ~~mil ion~~ million in FY2009 ($6 in FY2009 ($6 ~~mil ion~~ million added by P.L. 111-5, the Americanadded by P.L. 111-5, the American Recovery Recovery
and Reinvestmentand Reinvestment Act of 2009), $3.0 Act of 2009), $3.0 ~~mil ion~~ million in FY2010 and FY2011, $3.678 in FY2010 and FY2011, $3.678 ~~mil ion~~ million in FY2012, $3.498 in FY2012, $3.498 ~~mil ion~~million
(after sequestration) in FY2013, $4.6 (after sequestration) in FY2013, $4.6 ~~mil ion~~ million in FY2014, $2.5 in FY2014, $2.5 ~~mil ion~~ million in FY2015, $3.3 in FY2015, $3.3 ~~mil ion~~ million in FY2016, $4.3 in FY2016, $4.3
~~mil ion~~ million in FY2017, $3.44 in FY2017, $3.44 ~~mil ion~~ million in FY2018; $4 in FY2018; $4 ~~mil ion~~ million in FY2019; $5 in FY2019; $5 ~~mil ion~~ million in FY2020, and $12 in FY2020, and $12 ~~mil ion~~ million in in
FY2021. The Biden AdministrationFY2021. The Biden Administration has requested $6 has requested $6 ~~mil ion~~ million for Microloan credit subsidiesfor Microloan credit subsidies in FY2022. in FY2022.
In addition, P.L. 116-136, the CARES Act, appropriated $17 In addition, P.L. 116-136, the CARES Act, appropriated $17 ~~bil ion~~billion and P.L. and P.L. 116-260, the Economic Aid to Hard-116-260, the Economic Aid to Hard-
Hit Hit ~~Smal~~ Small Businesses,Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Appropriations Act,
2021) appropriated $3.5 2021) appropriated $3.5 ~~bil ion~~ billion for loan credit subsidiesfor loan credit subsidies related to the provision of monthly debt reliefrelated to the provision of monthly debt relief payments payments
to 7(a), 504/CDC, and Microloan borrowers.to 7(a), 504/CDC, and Microloan borrowers. P.L. 116-260 also appropriated $1.918 P.L. 116-260 also appropriated $1.918 ~~bil ion~~billion for 7(a) and for 7(a) and
504/CDC loan credit subsidies related to temporarily504/CDC loan credit subsidies related to temporarily increasing the 7(a) loan guarantee to 90%, temporarily increasing the 7(a) loan guarantee to 90%, temporarily
increasing the SBAExpress program’sincreasing the SBAExpress program’s ~~maximum~~ maximum loan amount to $1 loan amount to $1 ~~mil ion, temporarily~~ million, temporarily increasing the increasing the
SBAExpress program’sSBAExpress program’s loan guarantee fromloan guarantee from 50% to 75% for loans of $350,000 and less,50% to 75% for loans of $350,000 and less, and waiving specifiedand waiving specified 7(a) 7(a)
and 504/CDC fees. and 504/CDC fees.
Use of Proceeds and Borrower Satisfaction
In FY2016 (the latest availableIn FY2016 (the latest available data), borrowers used 504/CDC loan proceeds to data), borrowers used 504/CDC loan proceeds to
 purchase land and existing building (51.56%),  purchase land and existing building (51.56%),
 building (construction, remodeling, improvements, etc.) (21.10%),  building (construction, remodeling, improvements, etc.) (21.10%),
 machinery and equipment (purchase,  machinery and equipment (purchase, ~~instal ation~~installation, etc.) (7.09%), , etc.) (7.09%),
 make renovations to a building make renovations to a building (4.90%), (4.90%),
 purchase land (5.18%),  purchase land (5.18%),
 other expenses (eligible contingency expenses, interim interest, etc.) (2.84%),  other expenses (eligible contingency expenses, interim interest, etc.) (2.84%),
 purchase improvements (2.30%),  purchase improvements (2.30%),
 debt to be refinanced (1.51%),  debt to be refinanced (1.51%),
 professional fees (appraiser, architect, legal, etc.) (1.41%),  professional fees (appraiser, architect, legal, etc.) (1.41%),
 add an addition to a building (1.04%),  add an addition to a building (1.04%),
 purchase or  purchase or ~~instal~~ install fixtures (0.55%), or ~~fixtures (0.55%), or~~
~~Congressional Research Service~~

22

~~Small Business Administration 504/CDC Loan Guaranty Program~~

 make leasehold improvements to a building (0.52%). make leasehold improvements to a building (0.52%).9094
In 2008, the Urban Institute surveyed 504/CDC borrowers and found that two-thirds of the In 2008, the Urban Institute surveyed 504/CDC borrowers and found that two-thirds of the
respondents rated their respondents rated their ~~overal~~ overall satisfaction with their 504/CDC loan and loan terms as either satisfaction with their 504/CDC loan and loan terms as either
~~excel ent~~excellent (21%) or good (45%). About one out of every four borrowers (23%) rated their (21%) or good (45%). About one out of every four borrowers (23%) rated their ~~overal~~
overall satisfaction with their loan and loan terms as fair, 8% rated their satisfaction with their loan and loan terms as fair, 8% rated their ~~overal~~ overall satisfaction as poor, and satisfaction as poor, and
4% reported that they did not know or did not respond.4% reported that they did not know or did not respond.9195 In addition, 87% of the survey’s In addition, 87% of the survey’s
respondents reported that the 504/CDC loan was either very important (53%) or somewhat respondents reported that the 504/CDC loan was either very important (53%) or somewhat
94 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017. 95 Christopher Hayes, An Assessment of Small Business Administration Loan and Investment Performance: Survey of Assisted Businesses (Washington, DC: The Urban Institute, 2008), p. 5, at http://www.urban.org/UploadedPDF/411599_assisted_business_survey.pdf (hereinafter Christopher Hayes, An Assessment of Small Business Administration Loan and Investment Performance: Survey of Assisted Businesses). The percentage total exceeds 100 because recipients were allowed to name more than one use for the loan proceeds. Congressional Research Service 23 Small Business Administration 504/CDC Loan Guaranty Program important (34%) to their business success (4% reported that it was somewhat unimportant, 4% important (34%) to their business success (4% reported that it was somewhat unimportant, 4%
reported very unimportant, and 6% reported that they did not know or did not respond).reported very unimportant, and 6% reported that they did not know or did not respond).9296
A March 2014 Government Accountability Office (GAO) report examining the 504/CDC A March 2014 Government Accountability Office (GAO) report examining the 504/CDC
program found that, from FY2003 through March 31, 2013, the top four types of program found that, from FY2003 through March 31, 2013, the top four types of ~~smal~~ small businesses businesses
funded by 504/CDC loans were hotels (12%), restaurants (5%), doctor’s offices (4%), and funded by 504/CDC loans were hotels (12%), restaurants (5%), doctor’s offices (4%), and
dentist’s offices (3%). GAO also reported that 85% of approved 504/CDC loans and dollars went dentist’s offices (3%). GAO also reported that 85% of approved 504/CDC loans and dollars went
to existing to existing ~~smal~~ small businesses and 15% went to new businesses and 15% went to new ~~smal~~ small businesses.businesses.9397
Borrower Demographics
In 2008, the Urban Institute found that about 9.9% of private-sector In 2008, the Urban Institute found that about 9.9% of private-sector ~~smal~~ small business loans were business loans were
issued to minority-owned issued to minority-owned ~~smal~~ small businesses and about 16% of those loans were issued to women-businesses and about 16% of those loans were issued to women-
owned businesses.owned businesses.9498
In FY2021, 22.9% of the total amount of 504/CDC approved loans went to minority-owned In FY2021, 22.9% of the total amount of 504/CDC approved loans went to minority-owned
businesses (13.5% Asian, 7.7% Hispanic, 1.3% African American, and 0.3% Native American) businesses (13.5% Asian, 7.7% Hispanic, 1.3% African American, and 0.3% Native American)
and 8.7% went to women-owned businesses.and 8.7% went to women-owned businesses.9599 Based on its comparative analysis of private-sector Based on its comparative analysis of private-sector
~~smal~~ small business loans and the SBA’s loan guaranty programs, the Urban Institute concluded that business loans and the SBA’s loan guaranty programs, the Urban Institute concluded that
Overall, loans under the 7(a) and 504 programs were more likely to be made to minority Overall, loans under the 7(a) and 504 programs were more likely to be made to minority --
owned, women-owned, and start-up businesses (firms that have historically faced capital owned, women-owned, and start-up businesses (firms that have historically faced capital
gaps) as compared to conventional small business loans. Moreover, the average amounts gaps) as compared to conventional small business loans. Moreover, the average amounts
for loans made under the 7(a) and 504 programs to these types of firms were for loans made under the 7(a) and 504 programs to these types of firms were ~~substantialy~~substantially
greater than conventional small business loans to such firms. These findings suggest that greater than conventional small business loans to such firms. These findings suggest that
the 7(a) and 504 programs are being used by lenders in a manner that is consistent with the 7(a) and 504 programs are being used by lenders in a manner that is consistent with
SBA’s objective of making credit available to firms that face a capital opportunity gap.SBA’s objective of making credit available to firms that face a capital opportunity gap.96

~~90 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017.~~
~~91 Christopher Hayes,~~ ~~An Assessment of Small Business Administration Loan and Investment Performance: Survey of~~
~~Assisted Businesses~~ ~~(Washington, DC: T he Urban Institute, 2008), p. 5, at http://www.urban.org/UploadedPDF/~~
~~411599_assisted_business_survey.pdf (hereinafter Christopher Hayes,~~ ~~An Assessm ent of Sm all Business Adm inistration~~
~~Loan and Investm ent Perform ance: Survey of Assisted Businesses). T he percentage total exceeds 100 because~~
~~recipients were allowed to name more than one use for the loan proceeds.~~
92100 Congressional Issues Fee Subsidies and the 7(a) Program’s 90% Maximum Loan Guaranty Percentage As mentioned, the SBA was provided more than $1.1 billion in funding in 2009 and 2010 to subsidize the 504/CDC program’s third-party participation fee and CDC processing fee, subsidize the SBA’s 7(a) program’s guaranty fee, and increase the 7(a) program’s maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding 96 Christopher Hayes, Christopher Hayes, An Assessment of Small Business Administration Loan and Investment Performance: Survey of
Assisted Businesses, p. 5. , p. 5.
9397 GAO, GAO, Small Business Administration: Actions Needed to Ensure Planned Improvements Address Key Requirements
of the ~~Developm ent Com pany~~Development Company (504) Loan Program, GAO-14-233, March 6, 2014, p. 8, at http://www.gao.gov/assets/, GAO-14-233, March 6, 2014, p. 8, at http://www.gao.gov/assets/
670/661428.pdf. 670/661428.pdf.
94 98 Kenneth Kenneth ~~T emkin~~Temkin, Brett , Brett ~~T heodos~~Theodos, with Kerstin Gentsch, , with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 ~~Program s~~Programs (Washington, DC: (Washington, DC: ~~T he~~The Urban Institute, 2008), p. 13, at http://www.urban.org/ Urban Institute, 2008), p. 13, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf. UploadedPDF/411596_504_gap_analysis.pdf.
9599 SBA, SBA, “SBA“SBA Lending Statistics for Major Programs (as of September 30, 2021).” Lending Statistics for Major Programs (as of September 30, 2021).”
96100 Kenneth Kenneth ~~T emkin~~Temkin, Brett , Brett ~~T heodos~~Theodos, with Kerstin Gentsch, , with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 ~~Program s~~Programs (Washington, DC: (Washington, DC: ~~T he~~The Urban Institute, 2008), p. 21, at http://www.urban.org/ Urban Institute, 2008), p. 21, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf. Congressional Research Service Congressional Research Service

2324

Small Business Administration 504/CDC Loan Guaranty Program

~~Congressional Issues~~
~~Fee Subsidies and the 7(a) Program’s 90% Maximum Loan~~
~~Guaranty Percentage~~
~~As mentioned, the SBA was provided more than $1.1 bil ion in funding in 2009 and 2010 to~~
~~subsidize the 504/CDC program’s third-party participation fee and CDC processing fee, subsidize~~
~~the SBA’s 7(a) program’s guaranty fee, and increase the 7(a) program’s maximum loan guaranty~~
~~percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding~~
~~$150,000 to 90% for al~~ $150,000 to 90% for all standard 7(a) loans.standard 7(a) loans.97101 The Obama Administration argued that this The Obama Administration argued that this
additional funding improved the additional funding improved the ~~smal~~ small business lending environment, increased both the number business lending environment, increased both the number
and amount of SBA guaranteed loans, and supported hundreds of thousands of jobs.and amount of SBA guaranteed loans, and supported hundreds of thousands of jobs.98102 Critics Critics
argued that argued that ~~smal~~ small business tax reduction, reform of financial credit market regulation, and federal business tax reduction, reform of financial credit market regulation, and federal
fiscal restraint are a better means to assist fiscal restraint are a better means to assist ~~smal~~ small business economic growth and job creation.business economic growth and job creation.99
103 As mentioned, P.L. 116-136, the CARES Act, and P.L. 116-260, the Economic Aid to Hard-Hit As mentioned, P.L. 116-136, the CARES Act, and P.L. 116-260, the Economic Aid to Hard-Hit
~~Smal~~ Small Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated Businesses, Nonprofits, and Venues Act (Division N, Title III of the Consolidated
Appropriations Act, 2021) appropriated $17 Appropriations Act, 2021) appropriated $17 ~~bil ion~~ billion and $3.5 and $3.5 ~~bil ion~~billion, respectively, to provide , respectively, to provide
monthly debt reliefmonthly debt relief payments for 7(a), 504/CDC, and Microloan borrowers. P.L. 116-260 also payments for 7(a), 504/CDC, and Microloan borrowers. P.L. 116-260 also
appropriated $1.918 appropriated $1.918 ~~bil ion~~ billion for SBA loan enhancements, including the waiver of the 504/CDC for SBA loan enhancements, including the waiver of the 504/CDC
loan guaranty and processing fees from the date of enactment (December 27, 2020) through loan guaranty and processing fees from the date of enactment (December 27, 2020) through
~~September 30, 2021.~~

~~UploadedPDF/411596_504_gap_analysis.pdf.~~
~~97 P.L. 111-5, the ARRA, provided $375 million for fee subsidies~~ September 30, 2021. Lender Oversight The SBA’s Office of Inspector General (OIG) has included lender oversight in its list of the most serious management and performance challenges facing the SBA each year from FY2008 through FY2022.104 In its FY2022 report, the OIG argued that SBA loans are originated by lenders and non-bank lenders that have various degrees of expertise in SBA loan program requirements. Lenders often rely on the services of loan agents and lender service providers to help originate, close, service, and liquidate SBA loans ... [and many] traditional SBA 7(a) and 504 Certified Development Company loans are originated by lenders with delegated 101 P.L. 111-5, the ARRA, provided $375 million for fee subsidies and the 7(a) program’s 90% guaranty for all standard and the 7(a) program’s 90% guaranty for all standard
7(a) loans. ARRA’s7(a) loans. ARRA’s ~~funding~~ funding for these purposes wasfor these purposes was exhausted on November 23, 2009. P.L. 111-118, the Department of exhausted on November 23, 2009. P.L. 111-118, the Department of
Defense Appropriations Act, 2010, enacted on December 19, 2009, provided $125 million to extend the fee subsidies Defense Appropriations Act, 2010, enacted on December 19, 2009, provided $125 million to extend the fee subsidies
and 90% and 90% ~~guarant y~~guaranty through February 28, 2010. P.L. 111-144, the through February 28, 2010. P.L. 111-144, the ~~T emporary~~Temporary Extension Act of 2010, enacted on March Extension Act of 2010, enacted on March
2, 2010, provided $60 million to extend 2, 2010, provided $60 million to extend ~~th e~~the fee subsidies fee subsidies and 90% guaranty through March 28, 2010. P.L. 111-150, an and 90% guaranty through March 28, 2010. P.L. 111-150, an
act to extend the Small Businessact to extend the Small Business Loan Guarantee Program, enacted on March 26, 2010, authorized the use of $40 Loan Guarantee Program, enacted on March 26, 2010, authorized the use of $40
million in SBA-appropriated fundsmillion in SBA-appropriated funds to extend the fee subsidiesto extend the fee subsidies and 90% guaranty through April 30, 2010. P.L. 111-157, and 90% guaranty through April 30, 2010. P.L. 111-157,
the Continuing Extension Act of 2010, enacted on April 15, 2010, provided $80 million to extend the fee the Continuing Extension Act of 2010, enacted on April 15, 2010, provided $80 million to extend the fee ~~subsides~~ subsides and and
90% guaranty through May 31, 2010. P.L. 111-240, the Small Business90% guaranty through May 31, 2010. P.L. 111-240, the Small Business ~~Jobs~~ Jobs Act of 2010, enacted on September 27, Act of 2010, enacted on September 27,
2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee 2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee ~~subsidies and~~ subsidies and 90% 90%
guaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surfaceguaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface ~~T ransportation~~
Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidiesExtensions Act, 2011, authorized the SBA to continue the fee subsidies and 90% guaranty through March 4, 2011, or and 90% guaranty through March 4, 2011, or
until the fundinguntil the funding provided by the Small Businessprovided by the Small Business ~~Jobs~~ Jobs Act of 2010 for these purposes wasAct of 2010 for these purposes was exhausted (which occurred exhausted (which occurred
on January 3, 2011). on January 3, 2011).
98 102 SBA, SBA, “Statement from Administrator Mills on Continuing Support for Small“Statement from Administrator Mills on Continuing Support for Small ~~Businesses~~ Businesses through SBAthrough SBA Recovery Recovery
Programs,” February 19, 2010, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/Programs,” February 19, 2010, at https://www.sba.gov/about-sba/sba-newsroom/press-releases-media-advisories/
statementstatement -administrator-mills-continuing-support-small-businesses-through-sba-recovery-programs; and SBA,-administrator-mills-continuing-support-small-businesses-through-sba-recovery-programs; and SBA, “ “SBA SBA
Recovery Lending Extended Recovery Lending Extended ~~T hrough~~Through April 30,” March 29, 2010, at https://www.sba.gov/content/sba-recovery- April 30,” March 29, 2010, at https://www.sba.gov/content/sba-recovery-
lending-extended-through-april-30. lending-extended-through-april-30.
99103 Susan Susan Eckerly, “NFIB Responds to President’s SmallEckerly, “NFIB Responds to President’s Small ~~Business Lending~~ Business Lending Initiatives,” Washington, DC, October 21, Initiatives,” Washington, DC, October 21,
2009; and NFIB,2009; and NFIB, “ “Government Spending,” Washington, DC. Also, see NFIB, “Government Spending,” Washington, DC. Also, see NFIB, “ Government Spending: Small Government Spending: Small
BusinessesBusinesses Have a Bottom Line – Government Should, Have a Bottom Line – Government Should, ~~T oo~~Too,” at https://www.nfib.com/content/issues/economy/,” at https://www.nfib.com/content/issues/economy/
governmentgovernment ~~-spending-small-businesses-have-a-bottom-line-government-should-too-49051/.~~
~~Congressional Research Service~~

24

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~Lender Oversight~~
~~The SBA’s Office of Inspector General (OIG) has included lender oversight in its list of the most~~
~~serious management and performance chal enges facing the SBA each year from FY2008 through~~
~~FY2022.100 In its FY2022 report, the OIG argued that SBA loans~~
~~are originated by lenders and non-bank lenders that have various degrees of expertise in~~
~~SBA loan program requirements.~~
~~Lenders often rely on the services of loan agents and lender service providers to help~~
~~originate, close, service, and liquidate SBA loans ... [and many] traditional SBA 7(a) and~~
~~504 Certified Development Company loans are originated by lenders with delegated~~
-spending-small-businesses-have-a-bottom-line-government-should-too-49051/. 104 SBA, Office of Inspector General (OIG), “Report on the Most Serious Management and Performance Challenges By Office of Inspector General,” reports from FY2008-FY2022, at https://www.sba.gov/document/report-report-most-serious-management-performance-challenges-office-inspector-general. Congressional Research Service 25 Small Business Administration 504/CDC Loan Guaranty Program approval authority. Our previous audits have found SBA has not adequately recognized or approval authority. Our previous audits have found SBA has not adequately recognized or
managed significant lender weaknesses.managed significant lender weaknesses.~~101~~105
The SBA’s Office of Credit Risk Management (OCRM) manages SBA lending program risk, The SBA’s Office of Credit Risk Management (OCRM) manages SBA lending program risk,
monitors lender performance, and enforces SBA lending program requirements.monitors lender performance, and enforces SBA lending program requirements.~~102~~106 OCRM OCRM
monitors portfolio risk through the SBA’s Loan and Lender Monitoring System (L/LMS), which monitors portfolio risk through the SBA’s Loan and Lender Monitoring System (L/LMS), which
tracks monthly lender and loan performance and quarterly credit scores for tracks monthly lender and loan performance and quarterly credit scores for al all 7(a) and 504/CDC 7(a) and 504/CDC
loans. The L/LMS system is designed to help OCRM assess risks for 7(a) and CDC lenders, and loans. The L/LMS system is designed to help OCRM assess risks for 7(a) and CDC lenders, and
it identifies lenders “whose portfolio performance or other lender-specific risk-related factors it identifies lenders “whose portfolio performance or other lender-specific risk-related factors
demonstrated the need for additional SBA monitoring.”demonstrated the need for additional SBA monitoring.”~~103~~107 In FY2020, the SBA conducted 622 In FY2020, the SBA conducted 622
risk-based reviews of 7(a) and 504/CDC lenders. risk-based reviews of 7(a) and 504/CDC lenders.
In an effort to further enhance its ability to detect risks and to determine prospective trends, In an effort to further enhance its ability to detect risks and to determine prospective trends,
OCRM created new metrics in 2015 for monitoring 504/CDC lender loan performance OCRM created new metrics in 2015 for monitoring 504/CDC lender loan performance ~~cal ed~~called
SMART (measuring the lender’s solvency and financial condition, management and governance, SMART (measuring the lender’s solvency and financial condition, management and governance,
asset quality and servicing, regulatory compliance, and technical issues and mission) and updated asset quality and servicing, regulatory compliance, and technical issues and mission) and updated
those metrics in 2016.those metrics in 2016.~~104~~108 SMART is designed to “assist OCRM in identifying high risk lenders SMART is designed to “assist OCRM in identifying high risk lenders
and ensuring that lender oversight drives meaningful review activities, findings, and corrective and ensuring that lender oversight drives meaningful review activities, findings, and corrective
actions that reduce risk to the SBA.”actions that reduce risk to the SBA.”~~105~~109 OCRM also created a “detailed bench-marking analysis OCRM also created a “detailed bench-marking analysis

~~100 SBA, Office of Inspector General (OIG), “Report on the Most Serious Management and Performance Challenges By~~
~~Office of Inspector General,” reports from FY2008-FY2022, at https://www.sba.gov/document/report-report-most-~~
~~serious-management -performance-challenges-office-inspector-general.~~
~~101 SBA, OIG, “T op Management and Performance Challenges Facing the Small Business~~ project that will serve to establish quantitative performance metrics and indicators of quality (Preferred, Acceptable and Less than Acceptable) to be incorporated into each area of risk assessment identified in the ... SMART protocol measurement attributes.”110 In a 2019 audit, the SBA’s OIG reported that OCRM “did not always conduct planned high-risk lender reviews, recommend adequate and consistent risk mitigation actions, or communicate loan deficiencies they noted during their high-risk lender reviews to SBA approval and purchase loan centers.”111 The OIG made six recommendations to address these and other issues (including the development and implementation of policies and procedures to document OCRM’s justification 105 SBA, OIG, “Top Management and Performance Challenges Facing the Small Business Administration in Fiscal Administration in Fiscal
Year 2022,” Report 22-02, October 15, 2021, p. 14, at https://www.sba.gov/document/report-report-most-serious-Year 2022,” Report 22-02, October 15, 2021, p. 14, at https://www.sba.gov/document/report-report-most-serious-
managementmanagement -performance-challenges-office-inspector-general. -performance-challenges-office-inspector-general.
~~102~~106 P.L. 115-189, the Small Business P.L. 115-189, the Small Business 7(a) Lending Oversight Reform Act of 2018, codified the SBA’s7(a) Lending Oversight Reform Act of 2018, codified the SBA’s Office of Credit Office of Credit
Risk Management (OCRM), requiredRisk Management (OCRM), required that it be headed by a Director who is a career appointee in the Senior Executive that it be headed by a Director who is a career appointee in the Senior Executive
Service, and provided OCRMService, and provided OCRM with a list of duties, includingwith a list of duties, including submitting a report to Congress on each Decembersubmitting a report to Congress on each December ~~1 st~~ 1st
“containing the results of each portfolio risk analysis conducted ... during“containing the results of each portfolio risk analysis conducted ... during the fiscal year preceding the submissionthe fiscal year preceding the submission of of
the report.” the report.”
~~103~~107 SBA, SBA, FY2022 Congressional Justification and FY2020 Annual Performance Report, p. 44. , p. 44.
~~104~~108 SBA, SBA, ~~OIG, “T he~~ OIG, “The SBA’s Portfolio Risk Management Program Can be Strengthened,” July 2, 2013, p. 19, at SBA’s Portfolio Risk Management Program Can be Strengthened,” July 2, 2013, p. 19, at
https://www.sba.gov/sites/default/files/oig/Audit%20Evaluation%20Report%2013-https://www.sba.gov/sites/default/files/oig/Audit%20Evaluation%20Report%2013-
17%17%~~20T he~~20The%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf , SBA, , SBA,
“SBA“SBA Information Notice 5000-1348: Revised Risk-BasedInformation Notice 5000-1348: Revised Risk-Based ~~Review~~ Review Protocol for Certified Development Companies,” Protocol for Certified Development Companies,”
October 3, 2017 (effective August 5, 2015), atOctober 3, 2017 (effective August 5, 2015), at https://www.sba.gov/sites/default/files/lender_notices/5000-1348.pdf; https://www.sba.gov/sites/default/files/lender_notices/5000-1348.pdf;
and SBA,and SBA, “ “SBA Information Notice 5000-1398: Updated SMARTSBA Information Notice 5000-1398: Updated SMART Methodology for Oversight of CDCs,”Methodology for Oversight of CDCs,” October 3, October 3,
2017 (effective November 9, 2016), at2017 (effective November 9, 2016), at https://www.sba.gov/sites/default/files/lender_notices/SBA_Info_Notice_5000-https://www.sba.gov/sites/default/files/lender_notices/SBA_Info_Notice_5000-
1398_SM.pdf. 1398_SM.pdf.
~~105~~ 109 SBA, SBA, ~~OIG, “T he~~ OIG, “The SBA’s Portfolio Risk Management Program Can be Strengthened,” July 2, 2013, p. 19, at SBA’s Portfolio Risk Management Program Can be Strengthened,” July 2, 2013, p. 19, at
https://www.sba.gov/sites/default/files/oig/Audit%20Evaluation%20Report%2013-https://www.sba.gov/sites/default/files/oig/Audit%20Evaluation%20Report%2013-
~~Congressional Research Service~~

25

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~project that wil serve to establish quantitative performance metrics and indicators of quality~~
~~(Preferred, Acceptable and Less than Acceptable) to be incorporated into each area of risk~~
~~assessment identified in the ... SMART protocol measurement attributes.”106~~
~~In a 2019 audit, the SBA’s OIG reported that OCRM “did not always conduct planned high-risk~~
~~lender reviews, recommend adequate and consistent risk mitigation actions, or communicate loan~~
~~deficiencies they noted during their high-risk lender reviews to SBA approval and purchase loan~~
~~centers.”107 The OIG made six recommendations to address these and other issues (including the~~
~~development and implementation of policies and procedures to document OCRM’s justification~~17%20The%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf. 110 SBA, OIG, “The SBA’s Portfolio Risk Management Program Can Be Strengthened.” 111 SBA, Office of Inspector General (OIG), Audit of SBA’s Oversight of High-Risk Lenders, Report Number 20-03, November 12, 2019, p. i, at https://www.sba.gov/document/report-20-03-audit-sbas-oversight-high-risk-lenders (hereinafter SBA, OIG, Audit of SBA’s Oversight of High-Risk Lenders). Congressional Research Service 26 Small Business Administration 504/CDC Loan Guaranty Program
for not conducting planned reviews and to communicate systemic lender issues and material loan for not conducting planned reviews and to communicate systemic lender issues and material loan
deficiencies to the appropriate SBAdeficiencies to the appropriate SBA loan approval and purchase centers). SBA agreed with the loan approval and purchase centers). SBA agreed with the
OIG’s findings and recommendations and indicated that it would take actions to resolve OIG’s findings and recommendations and indicated that it would take actions to resolve al all of the of the
recommendations.recommendations.~~108~~112
Legislation
Congress has always shown a great interest in the SBA’s loan guarantee programs because of Congress has always shown a great interest in the SBA’s loan guarantee programs because of
concerns that concerns that ~~smal~~ small businesses might be prevented from accessing sufficient capital to enable businesses might be prevented from accessing sufficient capital to enable
them to create and retain jobs. That interest has grown them to create and retain jobs. That interest has grown ~~especial y~~especially acute in recent years due to the acute in recent years due to the
Coronavirus Disease 2019 (COVID-19) pandemic’s adverse economic impact on the national Coronavirus Disease 2019 (COVID-19) pandemic’s adverse economic impact on the national
economy.economy.
During the 111th Congress, legislation was enacted to assist During the 111th Congress, legislation was enacted to assist ~~smal~~ small businesses during and businesses during and
immediately following the Great Recession (2007-2009). For example, immediately following the Great Recession (2007-2009). For example,
 P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA),  P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA),
provided $375 provided $375 ~~mil ion~~ million to temporarily reduce fees in the SBA’s 7(a) and 504/CDC to temporarily reduce fees in the SBA’s 7(a) and 504/CDC
loan guaranty programs ($299 loan guaranty programs ($299 ~~mil ion~~million) and to temporarily increase the 7(a) ) and to temporarily increase the 7(a)
program’s maximum loan guaranty percentage to 90% ($76 program’s maximum loan guaranty percentage to 90% ($76 ~~mil ion).109~~million).113 Congress Congress
subsequently appropriated another $265 subsequently appropriated another $265 ~~mil ion~~million and authorized the SBA to and authorized the SBA to
reprogram another $40 reprogram another $40 ~~mil ion~~million to extend those subsidies and the loan to extend those subsidies and the loan
modification through May 31, 2010. ARRA also authorized the SBA to modification through May 31, 2010. ARRA also authorized the SBA to ~~al ow~~allow, ,
under specified circumstances, the use of 504/CDC program funds to refinance under specified circumstances, the use of 504/CDC program funds to refinance
existing debt for business expansion.existing debt for business expansion.~~110~~

~~17%20T he%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf.~~
~~106 SBA, OIG, “T he SBA’s Portfolio Risk Management Program Can Be Strengthened.”~~
~~107 SBA, Office of Inspector General (OIG), Audit of SBA’s Oversight of High-Risk Lenders, Report Number 20-03,~~
~~November 12, 2019, p. i, at https://www.sba.gov/document/report -20-03-audit-sbas-oversight -high-risk-lenders~~
~~(hereinafter SBA, OIG, Audit of SBA’s Oversight of High-Risk Lenders).~~
~~108 SBA, OIG, Audit of SBA’s Oversight of High-Risk Lenders, pp. 11-12.~~
~~109 SBA,~~ 114  P.L. 111-240, the Small Business Jobs Act of 2010, increased the 504/CDC program’s loan guaranty limits from $1.5 million to $5 million for “regular” borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers. The act also temporarily expanded for two years after the date of enactment (or until September 27, 2012) the types of projects eligible for refinancing of existing debt under the 504/CDC program; provided $505 million (plus an additional $5 million for administrative expenses) to continue fee subsidies for the 7(a) loan guaranty program and the 504/CDC program through December 31, 2010; and established an alternative size standard that allows more companies to qualify for 504/CDC assistance. 112 SBA, OIG, Audit of SBA’s Oversight of High-Risk Lenders, pp. 11-12. 113 SBA, “Recovery Act Agency Plan,” May 15, 2009, at https://www.sba.gov/sites/default/files/“Recovery Act Agency Plan,” May 15, 2009, at https://www.sba.gov/sites/default/files/
sba_recovery_act_plan.pdf. sba_recovery_act_plan.pdf.
~~110 T he~~114 The specified circumstances include specified circumstances include the following: the amount of existing indebtednessthe following: the amount of existing indebtedness does not exceed 50% of the does not exceed 50% of the
project cost of the expansion; the proceeds of the indebtedness wereproject cost of the expansion; the proceeds of the indebtedness were ~~used~~ used to acquireto acquire land, includingland, including the building the building
situated thereon, to construct a buildingsituated thereon, to construct a building thereon, or to purchase equipment; the existing indebtedness is collateralized thereon, or to purchase equipment; the existing indebtedness is collateralized
by fixed assets; the existing indebtednessby fixed assets; the existing indebtedness ~~was incurred~~ was incurred for the benefit of a small business;for the benefit of a small business; the financing isthe financing is ~~used~~ used only for only for
refinancing existing indebtednessrefinancing existing indebtedness or costs related to the project being financed; the refinancing provides a substantial or costs related to the project being financed; the refinancing provides a substantial
benefit to the borrower; the borrower has been current on all payments due on the existing debt for not less than one benefit to the borrower; the borrower has been current on all payments due on the existing debt for not less than one
year preceding the date of refinancing; and year preceding the date of refinancing; and ~~t he~~the financing provided will financing provided will have better terms or rate of interest than the have better terms or rate of interest than the
existing indebtedness.existing indebtedness. ~~See~~ See P.L. 111-5, the American Recovery and Reinvestment Act of 2009P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), Section 504. (ARRA), Section 504.
StimulusStimulus for Community Development Lending. for Community Development Lending.
Congressional Research Service Congressional Research Service

2627 Small Business Administration 504/CDC Loan Guaranty Program  P.L. 111-

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~ P.L. 111-240, the Smal Business Jobs Act of 2010, increased the 504/CDC~~
~~program’s loan guaranty limits from $1.5 million to $5 million for “regular”~~
~~borrowers, from $2 mil ion to $5 mil ion if the loan proceeds are directed toward~~
~~one or more specified public policy goals, and from $4 million to $5.5 million for~~
~~manufacturers. The act also temporarily expanded for two years after the date of~~
~~enactment (or until September 27, 2012) the types of projects eligible for~~
~~refinancing of existing debt under the 504/CDC program; provided $505 million~~
~~(plus an additional $5 million for administrative expenses) to continue fee~~
~~subsidies for the 7(a) loan guaranty program and the 504/CDC program through~~
~~December 31, 2010; and established an alternative size standard that al ows more~~
~~companies to qualify for 504/CDC assistance.~~
~~ P.L. 111-~~322, the Continuing Appropriations and Surface Transportation 322, the Continuing Appropriations and Surface Transportation
Extensions Act, 2011, authorized the SBA Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the to continue the fee subsidies and the
7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011, 7(a) program’s 90% maximum loan guaranty percentage through March 4, 2011,
or until funding provided for these purposes in P.L. 111-240 was exhausted or until funding provided for these purposes in P.L. 111-240 was exhausted
(which occurred on January 3, 2011). (which occurred on January 3, 2011).
During the 114th Congress, P.L. 114-113, the Consolidated Appropriations Act, 2016, reinstated During the 114th Congress, P.L. 114-113, the Consolidated Appropriations Act, 2016, reinstated
the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty
program, but only in any fiscal year in which the refinancing program and the 504/CDC program program, but only in any fiscal year in which the refinancing program and the 504/CDC program
as a whole do not have credit subsidy costs. (P.L. 116-260 repealed this limitation.) The act as a whole do not have credit subsidy costs. (P.L. 116-260 repealed this limitation.) The act
required each CDC to limit its refinancing so that, during any fiscal year, the new refinancings do required each CDC to limit its refinancing so that, during any fiscal year, the new refinancings do
not exceed 50% (now 100%) of the dollars it loaned under the 504/CDC program during the not exceed 50% (now 100%) of the dollars it loaned under the 504/CDC program during the
previous fiscal year.previous fiscal year.~~111~~115 The SBA was authorized to waive the 50% limit for good cause. An The SBA was authorized to waive the 50% limit for good cause. An
interim final rule implementing the new refinancing program was issued by the SBA on May 25, interim final rule implementing the new refinancing program was issued by the SBA on May 25,
2016, effective June 24, 2016.2016, effective June 24, 2016.~~112~~116
During the 115th Congress, P.L. 115-371, the During the 115th Congress, P.L. 115-371, the ~~Smal~~ Small Business Access to Capital and Efficiency Business Access to Capital and Efficiency
(ACE) Act, amended the (ACE) Act, amended the ~~Smal~~ Small Business Investment Act of 1958 to increase the threshold amount Business Investment Act of 1958 to increase the threshold amount
for determining when a CDC is required to secure an independent real estate appraisal for a for determining when a CDC is required to secure an independent real estate appraisal for a
504/CDC loan (from if the estimated value of the project property is greater than $250,000 to if 504/CDC loan (from if the estimated value of the project property is greater than $250,000 to if
the estimated value of the project property is greater than the federal banking regulator appraisal the estimated value of the project property is greater than the federal banking regulator appraisal
threshold, which was increased from $250,000 to $500,000 in 2018).threshold, which was increased from $250,000 to $500,000 in 2018).~~113~~117
In addition, the Trump Administration proposed in its FY2020 and FY2021 budget requests that In addition, the Trump Administration proposed in its FY2020 and FY2021 budget requests that
the maximum dollar amount for a 504 loan to a the maximum dollar amount for a 504 loan to a ~~smal~~ small manufacturer be increased to $6.5 manufacturer be increased to $6.5 ~~mil ion~~
million from $5.5 million.118 During the 116th Congress, legislation was enacted to assist small businesses adversely affected by the COVID-19 pandemic. For example,  P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other provisions, created the Paycheck Protection Program (PPP), which provides low-interest, forgivable loans to small businesses adversely affected by the COVID-19 pandemic, and appropriated $17 billion for six-month payment relief for existing 7(a), 504/CDC, and Microloan borrowers in a regular servicing status (i.e., fully disbursed) beginning with the next payment due date. Loans already on deferment received six months of SBA payments beginning with the first payment after the deferral period. Loans in a regular servicing status 115 The~~from $5.5 mil ion.114~~

~~111 T he~~ act also eliminated an alternative job retention goal for the expanded refinancing program authorized by act also eliminated an alternative job retention goal for the expanded refinancing program authorized by P.L. P.L.
111-240, the Small Business111-240, the Small Business Jobs Act of 2010. It also increased the SBA’sJobs Act of 2010. It also increased the SBA’s ~~Small Business~~ Small Business Investment Company Investment Company
program’s family of fundsprogram’s family of funds limit (the amount of outstanding leverage allowedlimit (the amount of outstanding leverage allowed for two or more SBICfor two or more SBIC licenses under licenses under
common control) to $350 million from $225 million and increased the 7(a) loan program’s authorization limit to common control) to $350 million from $225 million and increased the 7(a) loan program’s authorization limit to
$26.5 billion for FY2016 from $23.5 billion for FY2015. $26.5 billion for FY2016 from $23.5 billion for FY2015.
~~112~~116 SBA, SBA, “Debt Refinancing in 504 Loan Program,” 81“Debt Refinancing in 504 Loan Program,” 81 Federal Register 33123-33126, May 25, 2016. 33123-33126, May 25, 2016.
~~113~~117 Department of the Treasury, Office of the Comptroller of the Currency, Federal Reserve System, and Federal Department of the Treasury, Office of the Comptroller of the Currency, Federal Reserve System, and Federal
Deposit Insurance Corporation, “Real Estate Appraisals,” 83Deposit Insurance Corporation, “Real Estate Appraisals,” 83 Federal Register 15,019, April 9, 2018. 15,019, April 9, 2018.
~~114~~ 118 SBA, SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 35, at , p. 35, at
https://www.sba.gov/sites/default/files/2019-04/https://www.sba.gov/sites/default/files/2019-04/
SBA%20FY%202020%20Congressional%20Justification_final%20508%20%204%2023%202019.pdfSBA%20FY%202020%20Congressional%20Justification_final%20508%20%204%2023%202019.pdf ; and SBA, ; and SBA,
FY2021 Congressional Budget Justification and FY2019 Annual ~~Perform ance~~Performance Report , p. 32. , p. 32.
Congressional Research Service Congressional Research Service

2728 Small Business Administration 504/CDC Loan Guaranty Program

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~During the 116th Congress, legislation was enacted to assist smal businesses adversely affected~~
~~by the COVID-19 pandemic. For example,~~
~~ P.L. 116-136, the Coronavirus Aid, Relief, and Economic Security Act (CARES~~
~~Act), among other provisions, created the Paycheck Protection Program (PPP),~~
~~which provides low-interest, forgivable loans to smal businesses adversely~~
~~affected by the COVID-19 pandemic, and appropriated $17 bil ion for six-month~~
~~payment relief for existing 7(a), 504/CDC, and Microloan borrowers in a regular~~
~~servicing status (i.e., fully disbursed) beginning with the next payment due date.~~
~~Loans already on deferment received six months of SBA payments beginning~~
~~with the first payment after the deferral period. Loans in a regular servicing status~~
up to six months after enactment (until September 27, 2020) were also eligible up to six months after enactment (until September 27, 2020) were also eligible
for six monthly payments of debt relief.for six monthly payments of debt relief.~~115~~
119  P.L. 116-260, the Economic Aid to Hard-Hit  P.L. 116-260, the Economic Aid to Hard-Hit ~~Smal~~ Small Businesses, Nonprofits, and Businesses, Nonprofits, and
Venues Act (Division N, Title III of the Consolidated Appropriations Act, 2021), Venues Act (Division N, Title III of the Consolidated Appropriations Act, 2021),
among other provisions, appropriated $3.5 among other provisions, appropriated $3.5 ~~bil ion~~billion to resume monthly payment to resume monthly payment
relief for 7(a), 504/CDC, and Microloan borrowers, capped at $9,000 per month relief for 7(a), 504/CDC, and Microloan borrowers, capped at $9,000 per month
per borrower. Payments are dependent on the availability of funds, when the loan per borrower. Payments are dependent on the availability of funds, when the loan
was disbursed, the type of loan received, and the business’s industry.was disbursed, the type of loan received, and the business’s industry.~~116~~ The act The act
also waived specified 7(a) and 504/CDC loan guarantee program fees in FY2021, also waived specified 7(a) and 504/CDC loan guarantee program fees in FY2021,
modified 504/CDC refinancing regulations to expand borrower access to the modified 504/CDC refinancing regulations to expand borrower access to the
refinancing program and create reciprocity for refinancing under the 7(a) and refinancing program and create reciprocity for refinancing under the 7(a) and
504/CDC programs, and temporarily authorized the SBA, through September 30, 504/CDC programs, and temporarily authorized the SBA, through September 30,
2023, to establish a 504/CDC Express Loan program to expedite the approval of 2023, to establish a 504/CDC Express Loan program to expedite the approval of
504/CDC loans that do not exceed $500,000. 504/CDC loans that do not exceed $500,000.
During the 117th Congress, P.L. 117-43, the Extending Government Funding and Delivering During the 117th Congress, P.L. 117-43, the Extending Government Funding and Delivering
Emergency Assistance Act, provides continuing FY2022 appropriations for federal agencies, Emergency Assistance Act, provides continuing FY2022 appropriations for federal agencies,
including the SBA, through December 3, 2021. The SBA is authorized to appropriate available including the SBA, through December 3, 2021. The SBA is authorized to appropriate available
funds up to the rate necessary to accommodate increased demand for commitments for several funds up to the rate necessary to accommodate increased demand for commitments for several
SBA programs, including 504/CDC business loans.SBA programs, including 504/CDC business loans.~~117~~

~~115 Community Advantage Recovery Loans in a regular servicing status (i.e., fully disbursed) up until October 1, 2020,~~
~~were eligible for six months of loan payments. See SBA, “Guidance on the Implementation of the Extension of the~~
~~Section 1112 Debt Relief Program for the 7(a) and 504 Loan Programs, as Authorized by Section 325 of the Econo mic~~
~~Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” Procedural Notice 5000 -20079, January 19, 2021, at~~
~~https://www.sba.gov/document/procedural-notice-5000-20079-guidance-implementation-extension-section-1112-debt-~~
~~relief-program-7a-504-loan-programs-authorized.~~
~~116 T he SBA announced that the $3.5 billion appropriation would enable the agency to provide two additional monthly~~
~~payments on 7(a) and 504/CDC loans that were in repayment before March 27, 2020, starting with the next payment~~
~~due on or after February 1, 2021. After the first two monthly payments are provided, busine sses with an SBA~~
~~Community Advantage loan, Microloan, or operating in specified economically hard-hit industries would receive an~~
~~additional three monthly payments. Loans approved from February 1, 2021, through September 30, 2021, would~~
~~receive three monthly payments beginning with the first payment due. See SBA, “ Adjustment to Number of Months of~~
~~Section 1112 Payments in the 7(a), 504 and Microloan Programs Due to Insufficiency of Funds,” SBA Procedural~~
~~Notice, 5000-20095, February 16, 2021, at https://www.sba.gov/document/procedural-notice-5000-20095-adjustment-~~
~~number-months-section-1112-payments-7a-504-microloan-programs-due-insufficiency-funds.~~
~~117 P.L. 117-43 §128 provides that amounts made available by Section 101 for “Small Business Administration—~~
~~Business Loans Program Account” may be apportioned up to the rate for operations necessary to accommodate~~
~~increased demand for commitments for general business loans authorized under paragraphs (1) through (35) of Section~~
~~7(a) of the Small Business Act (15 U.S.C. §636(a)), for guarantees of trust certificates authorized by Section 5(g) of the~~
~~Small Business Act (15 U.S.C. §634(g)), for commit ments to guarantee loans under Section 503 of the Small Business~~
~~Congressional Research Service~~

28

~~Small Business Administration 504/CDC Loan Guaranty Program~~

~~Concluding Observations~~
~~The smal business relief legislation enacted during the 116th Congress included several~~
~~provisions enacted during the 111th Congress to address the Great Recession, such as fee waivers,~~
~~increased loan limits, and increased loan guarantee percentages. However, the legislation enacted~~
~~during the 116th Congress is fundamental y different from that enacted during the 111th Congress.~~
~~First, it is much larger in scale ($1.086 tril ion in supplemental appropriations) than the legislation~~
~~enacted during the 111th Congress ($1.693 bil ion in supplemental appropriations). Second,~~
~~expectations about repayment are much different, as the smal business relief legislation enacted~~
~~during the 116th Congress includes PPP loan forgiveness and monthly debt relief payments for~~
~~7(a), 504/CDC, and Microloan borrowers. Third, the legislation enacted during the 116th Congress~~
~~greatly expanded program eligibility, including, for the first time, eligibility for specific types of~~
~~nonprofit organizations.~~
~~In terms of recent program changes, providing 504/CDC fee waivers, expanding 504/CDC~~
~~refinancing, and creating a 504/CDC Express Loan program were (and are) designed to create~~
~~and retain jobs by increasing the ability of 504/CDC borrowers to access credit at affordable~~
~~rates.~~
~~Initial y, Congress focused on providing relief as quickly as possible to prevent smal business~~
~~failures and job loss. In the coming months, congressional oversight is likely to focus increased~~
~~attention on the SBA’s administration of these programs, especial y the SBA’s efforts to deter~~
~~fraud, and the impact these programs have on smal business survival and job creation and~~
120 Concluding Observations The small business relief legislation enacted during the 116th Congress included several provisions enacted during the 111th Congress to address the Great Recession, such as fee waivers, increased loan limits, and increased loan guarantee percentages. However, the legislation enacted during the 116th Congress is fundamentally different from that enacted during the 111th Congress. First, it is much larger in scale ($1.086 trillion in supplemental appropriations) than the legislation enacted during the 111th Congress ($1.693 billion in supplemental appropriations). Second, expectations about repayment are much different, as the small business relief legislation enacted during the 116th Congress includes PPP loan forgiveness and monthly debt relief payments for 7(a), 504/CDC, and Microloan borrowers. Third, the legislation enacted during the 116th Congress greatly expanded program eligibility, including, for the first time, eligibility for specific types of nonprofit organizations. In terms of recent program changes, providing 504/CDC fee waivers, expanding 504/CDC refinancing, and creating a 504/CDC Express Loan program were (and are) designed to create 119 Community Advantage Recovery Loans in a regular servicing status (i.e., fully disbursed) up until October 1, 2020, were eligible for six months of loan payments. See SBA, “Guidance on the Implementation of the Extension of the Section 1112 Debt Relief Program for the 7(a) and 504 Loan Programs, as Authorized by Section 325 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” Procedural Notice 5000-20079, January 19, 2021, at https://www.sba.gov/document/procedural-notice-5000-20079-guidance-implementation-extension-section-1112-debt-relief-program-7a-504-loan-programs-authorized. 120 P.L. 117-43 §128 provides that amounts made available by Section 101 for “Small Business Administration—Business Loans Program Account” may be apportioned up to the rate for operations necessary to accommodate increased demand for commitments for general business loans authorized under paragraphs (1) through (35) of Section 7(a) of the Small Business Act (15 U.S.C. §636(a)), for guarantees of trust certificates authorized by Section 5(g) of the Small Business Act (15 U.S.C. §634(g)), for commitments to guarantee loans under Section 503 of the Small Business Investment Act of 1958 (15 U.S.C. §697), and for commitments to guarantee loans for debentures under Section 303(b) of the Small Business Investment Act of 1958 (15 U.S.C. §683(b)). Congressional Research Service 29 Small Business Administration 504/CDC Loan Guaranty Program and retain jobs by increasing the ability of 504/CDC borrowers to access credit at affordable rates. Initially, Congress focused on providing relief as quickly as possible to prevent small business failures and job loss. In the coming months, congressional oversight is likely to focus increased attention on the SBA’s administration of these programs, especially the SBA’s efforts to deter fraud, and the impact these programs have on small business survival and job creation and retention. retention.
Among the lessons learned from the 111th Congress are the potential benefits that could derive Among the lessons learned from the 111th Congress are the potential benefits that could derive
from providing additional funding for the SBA’s OIG and for GAO. GAO and the SBA’s OIG from providing additional funding for the SBA’s OIG and for GAO. GAO and the SBA’s OIG
can provide Congress information that could prove useful as Congress engages in congressional can provide Congress information that could prove useful as Congress engages in congressional
oversight of the SBA’s administration of these programs, provide an early warning if unforeseen oversight of the SBA’s administration of these programs, provide an early warning if unforeseen
administrative problems should arise, and, through investigations and audits, serve as a deterrent administrative problems should arise, and, through investigations and audits, serve as a deterrent
to fraud. to fraud.
Requiring the SBA to report regularly on its implementation of these programs could also Requiring the SBA to report regularly on its implementation of these programs could also
promote transparency and assist Congress in performing its oversight responsibilities. In addition, promote transparency and assist Congress in performing its oversight responsibilities. In addition,
requiring output and outcome performance measures and requiring the SBA to report this requiring output and outcome performance measures and requiring the SBA to report this
information directly to both Congress and the public by posting that information on the SBA’s information directly to both Congress and the public by posting that information on the SBA’s
website could enhance both congressional oversight and public confidence in the SBA’s efforts to website could enhance both congressional oversight and public confidence in the SBA’s efforts to
assist small businesses. assist small businesses.

Author Information

Robert Jay Dilger Robert Jay Dilger

Anthony A. Cilluffo Senior Specialist in American National Government Analyst in Public Finance ~~Senior Specialist in American National Government~~

~~Investment Act of 1958 (15 U.S.C. §697), and for commitments to guarantee loans for debentures under Section 303(b)~~
~~of the Small Business Investment Act of 1958 (15 U.S.C. §683(b)).~~
~~Congressional Research Service~~

29

~~Small Business Administration 504/CDC Loan Guaranty Program~~

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report should ~~n ot~~not be relied upon for purposes other be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.

Congressional Research Service Congressional Research Service
R41184 R41184 · VERSION 98100 · UPDATED
30 30