Small Business Administration 504/CDC Loan Guaranty Program

Small Business Administration 504/CDC Loan
June 23, 2021
Guaranty Program
Robert Jay Dilger
The Small Business Administration (SBA) administers several programs to support small
Senior Specialist in
businesses, including loan guaranty programs designed to encourage lenders to provide loans to
American National
small businesses “that might not otherwise obtain financing on reasonable terms and conditions.”
Government
The SBA’s 504 Certified Development Company (504/CDC) loan guaranty program is

administered through nonprofit Certified Development Companies (CDCs). It provides long-term
fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. 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 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 Small Business Investment Act of 1958 (P.L. 85-699, as amended),
which provides the most recent authorization for the SBA’s sale of 504/CDC debentures. In FY2020, the SBA approved
7,119 504/CDC loans amounting to over $5.8 billion.
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 sufficient 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) pandemic’s adverse economic impact on the
national economy. For example,
 P.L. 116-136, 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
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. Loans in a regular servicing status (i.e., fully disbursed) up to six months after enactment (until
September 27, 2020) were also eligible to receive the six monthly payments of debt relief.
 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. 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
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
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
requirements; and performance statistics, including loan volume, loss rates, proceeds usage, borrower satisfaction, and
borrower demographics.
This report 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, the Small Business
Jobs Act of 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.
Congressional Research Service


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Contents
Small Business Administration Loan Guaranty Programs .............................................................. 1
Program Participants and Financing Contribution .......................................................................... 5
Borrower Eligibility Standards and Program Requirements ........................................................... 6
Borrower Eligibility Standards.................................................................................................. 6
Borrower Program Requirements.............................................................................................. 7
Use of Proceeds .................................................................................................................. 7
Job Creation and Retention Requirement ........................................................................... 8
Loan Amounts ................................................................................................................... 10
Loan Terms, Interest Rate, and Collateral ......................................................................... 10

CDC Eligibility Standards, Operating Requirements, and Program Requirements ...................... 12
CDC Eligibility Standards ....................................................................................................... 12
CDC Operating Requirements ................................................................................................ 13
CDC Program Requirements ................................................................................................... 14
The Application Process ................................................................................................... 14
Loan Guaranty and Servicing Fees ......................................................................................... 17
SBA Fees ........................................................................................................................... 17
CDC Fees .......................................................................................................................... 18
Fee Subsidies .................................................................................................................... 20
Program Statistics .......................................................................................................................... 21
Loan Volume ........................................................................................................................... 21
Appropriations for Subsidy Costs ........................................................................................... 23
Use of Proceeds and Borrower Satisfaction ............................................................................ 24
Borrower Demographics ......................................................................................................... 25
Congressional Issues ..................................................................................................................... 26
Fee Subsidies and the 7(a) Program’s 90% Maximum Loan Guaranty Percentage ................ 26
Program Administration .......................................................................................................... 27
Legislative Activity During the 111th Congress ............................................................................. 29
Legislative Activity During the 112th Congress ............................................................................. 31
Legislative Activity During the 113th Congress ............................................................................. 32
Legislative Activity During the 114th Congress ............................................................................. 32
Legislative Activity During the 115th Congress ............................................................................. 33
Legislative Activity During the 116th Congress ............................................................................. 34
Concluding Observations .............................................................................................................. 35

Tables
Table 1. 504/CDC Loan Structures and Contribution Requirements .............................................. 6
Table 2. Number and Amount of 504/CDC Loans, FY2005-FY2020 ........................................... 22
Table 3. Number and Amount of 504/CDC Refinance Loans, FY2011, FY2012, FY2016-
FY2019 ....................................................................................................................................... 23
Table 4. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty Programs,
FY2005-FY2022 ........................................................................................................................ 23

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link to page 39 Small Business Administration 504/CDC Loan Guaranty Program

Contacts
Author Information ........................................................................................................................ 35

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Small Business Administration 504/CDC Loan Guaranty Program

Small Business Administration Loan
Guaranty Programs
The Small Business Administration (SBA) administers several programs to support small
businesses, including loan guaranty programs designed to encourage lenders to provide loans to
small businesses “that might not otherwise obtain financing on reasonable terms and conditions.”1
Historically, one of the justifications presented for funding the SBA’s loan guaranty programs has
been that small businesses can be at a disadvantage, compared with other businesses, when trying
to obtain access to sufficient capital and credit.2
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
machinery. Its name is derived from Section 504 of the Small Business Investment Act of 1958
(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
504/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, 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

1 U.S. Small Business Administration (SBA), Fiscal Year 2010 Congressional Budget Justification, p. 30, at
https://www.sba.gov/sites/default/files/2018-06/Congressional_Budget_Justification_2010.pdf.
2 U.S. Government Accountability Office (GAO), Small Business Administration: 7(a) Loan Program Needs
Additional Performance Measures
, GAO-08-226T, November 1, 2007, pp. 3, 9-11, at http://www.gao.gov/new.items/
d08226t.pdf; and Veronique de Rugy, Why the Small Business Administration’s Loan Programs Should Be Abolished,
American Enterprise Institute for Public Policy Research, AEI Working Paper #126, April 13, 2006, at
http://www.aei.org/docLib/20060414_wp126.pdf. Proponents of federal funding for the SBA’s loan guarantee
programs also argue that small business can promote competitive markets. See P.L. 83-163, §2(a), as amended; and 15
U.S.C. §631a.
3 The 504 Certified Development Company (504/CDC) program was preceded by a Section 501 state development
company program (1958-1982), a Section 502 local development company program (1958-1995), and a Section
503/CDC program (1980-1986). The 504/CDC program started in 1986.
The 504/CDC program’s 20-year and 25-year debentures are pooled and sold on the first Thursday of the first full week
of each month (beginning with and including Sunday); 10-year debentures are pooled and sold on the first Thursday of
the first full week of every other month (beginning with and including Sunday) starting with the January sale. See
Eagle Compliance, LLC, “Monthly 504 Interest Rate,” at https://www.eaglecompliance504.com/monthly-504-interest-
rate.html.
The SBA made 25-year 504/CDC debentures available for 504/CDC projects approved on or after April 2, 2018. See
SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018.
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.
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debenture.6 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).
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
receive Development Company Participation certificates (DCPC) representing ownership of all or
part of the pool. DCPCs have a minimum value of $25,000 and can be sold on the secondary
market.
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.7 After a 504/CDC loan is approved and disbursed,
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
payment of the debenture. If the small business is behind in its loan payments, the SBA pays the
difference to the investor on every semiannual due date.
In FY2020, the SBA approved 7,119 504/CDC loans amounting to over $5.8 billion.8 At the end
of FY2019, there were 55,544 504/CDC loans with an unpaid principal balance of about $25.8
billion, and 2,065 504/CDC refinancing loans with an unpaid principal balance of about $1.4
billion.9
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 sufficient capital to enable
them to create and retain jobs. That interest has grown especially acute in recent months due to
the Coronavirus Disease 2019 (COVID-19) pandemic’s adverse economic impact on the national
economy.
Congress authorized several changes to the 504/CDC program during the 111th Congress in an
effort to assist small businesses during and immediately following the Great Recession (2007-
2009). For example
 P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA),
provided $375 million to temporarily reduce fees in the SBA’s 7(a) and 504/CDC
loan guaranty programs ($299 million) and to temporarily increase the 7(a)
program’s maximum loan guaranty percentage to 90% ($76 million).10 Congress
subsequently appropriated another $265 million and authorized the SBA to
reprogram another $40 million to extend those subsidies and the loan
modification through May 31, 2010. ARRA also authorized the SBA to allow,
under specified circumstances, the use of 504/CDC program funds to refinance
existing debt for business expansion.11

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, 2020),” at https://www.sba.gov/sites/default/
files/2020-10/WebsiteReport_asof_20200930-508.pdf (hereinafter SBA, “SBA Lending Statistics for Major Programs
(as of September 30, 2020)”).
9 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, October 18, 2019.
10 SBA, “Recovery Act Agency Plan,” May 15, 2009, at https://www.sba.gov/sites/default/files/
sba_recovery_act_plan.pdf.
11 The specified circumstances include the following: the amount of existing indebtedness does not exceed 50% of the
project cost of the expansion; the proceeds of the indebtedness were used to acquire land, including the building
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 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.
 P.L. 111-322, the Continuing Appropriations and 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 funding provided for these purposes in P.L. 111-240 was exhausted
(which occurred on January 3, 2011).
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
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
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
previous fiscal year.12 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, 2016,
effective June 24, 2016.13
During the 115th Congress, P.L. 115-371, the Small Business Access to Capital and Efficiency
(ACE) Act, amended the Small 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
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
threshold, which was increased from $250,000 to $500,000 in 2018).14

situated thereon, to construct a building thereon, or to purchase equipment; the existing indebtedness is collateralized
by fixed assets; the existing indebtedness was incurred for the benefit of a small business; the financing is used only for
refinancing existing indebtedness 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
year preceding the date of refinancing; and the financing provided will have better terms or rate of interest than the
existing indebtedness. See P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), Section 504.
Stimulus for Community Development Lending.
12 The act also eliminated an alternative job retention goal for the expanded refinancing program authorized by P.L.
111-240, the Small Business Jobs Act of 2010. It also increased the SBA’s Small Business Investment Company
program’s family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under
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.
13 SBA, “Debt Refinancing in 504 Loan Program,” 81 Federal Register 33123-33126, May 25, 2016.
14 Department of the Treasury, Office of the Comptroller of the Currency, Federal Reserve System, and Federal Deposit
Insurance Corporation, “Real Estate Appraisals,” 83 Federal Register 15,019, April 9, 2018.
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In addition, the Trump Administration proposed in its FY2020 and FY2021 budget requests that
the maximum dollar amount for a 504 loan to a small manufacturer be increased to $6.5 million
from $5.5 million.15
Congress authorized several changes to the 504/CDC program during the 116th Congress in an
effort 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 $349 billion (now $813.7 billion)
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 up to six months after enactment (until
September 27, 2020) were also eligible for six monthly payments of debt relief.16
 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.17 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 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 program to expedite the approval of
504/CDC loans that do not exceed $500,000.

15 SBA, FY2020 Congressional Budget Justification and FY2018 Annual Performance Report, p. 35, at
https://www.sba.gov/sites/default/files/2019-04/
SBA%20FY%202020%20Congressional%20Justification_final%20508%20%204%2023%202019.pdf; and SBA,
FY2021 Congressional Budget Justification and FY2019 Annual Performance Report, p. 32, at https://www.sba.gov/
document/report—congressional-budget-justification-annual-performance-report (hereinafter SBA, FY2021
Congressional Budget Justification and FY2019 Annual Performance Report
).
16 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.
17 The SBA has announced that the $3.5 billion appropriation will 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, businesses with an SBA
Community Advantage loan, Microloan, or operating in specified economically hard-hit industries will receive an
additional three monthly payments. Loans approved from February 1, 2021, through September 30, 2021, will 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.
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link to page 10 Small Business Administration 504/CDC Loan Guaranty Program

This report examines the program’s borrower and lender eligibility standards; program
requirements; and program statistics, including loan volume, loss rates, proceeds usage, borrower
satisfaction, and borrower demographics. Next, it surveys congressional action taken during
recent Congresses to enhance small business access to capital, including P.L. 111-5, P.L. 111-240,
P.L. 116-136, and P.L. 116-260.
This report also discusses issues raised concerning the SBA’s administration of the program,
including the oversight of 504/CDC lenders.
Program Participants and Financing Contribution
As shown in Table 1, 504/CDC projects generally have three main participants: a third-party
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
contributes at least 10% of the financing.
The CDC’s contribution, and the amount of the SBA’s 100% guaranteed debenture, generally
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
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
the use for which it is designed”) or a special purpose property.18 The SBA lists 27 limited and
special purpose properties (e.g., dormitories, golf courses, hospitals, and bowling alleys).19 The
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.
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
purpose property.20 They must contribute at least 20% if the borrower is a new business and the
loan is for either a limited-market property or special purpose property.21

18 A 504/CDC loan generally may not exceed 40% of total project costs, 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.
19 The SBA considers the following to be limited or special purpose properties: amusement parks; bowling alleys; car
wash properties; cemeteries; clubhouses; cold storage facilities in which more than 50% of total square footage is
equipped for refrigeration; dormitories; farms, including dairy facilities; funeral homes with crematoriums; gas stations;
golf courses; hospitals, surgery centers, urgent care centers, and other health medical facilities; hotels and motels;
marinas; mines; museums; nursing homes, including assisted living facilities; oil wells; quarries, including gravel pits;
railroads; sanitary landfills; service centers (e.g., oil and lube, brake, or transmission centers) with pits and in-ground
lifts; sports arenas; swimming pools; tennis clubs; theaters; and wineries. SBA, “SOP 50 10 6: Lender and
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 6: Lender and Development
Company Loan Programs”).
20 The SBA announced in the Federal Register on August 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%,
instead of not less than 15%, to projects involving limited or special purpose buildings or structures when refinancing
debt without expansion. The lower required contribution will be in effect until the first day of the calendar quarter
following the end of the economic recession as determined by the National Bureau of Economic Research or its
equivalent.” See SBA, “504 Debt Refinancing Without Expansion-Borrower’s Contribution for Projects Involving
Limited or Single Purpose Buildings During Recession,” 85 Federal Register 46775-46776, August 3, 2020.
21 “Loans under the 504 program provide permanent or take-out financing [long-term financing that replaces short-term
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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.
Borrower Eligibility Standards and Program
Requirements

Borrower Eligibility Standards
To be eligible for a SBA business loan, a small business applicant must
 be located in the United States;
 be a for-profit operating business (except for loans to eligible passive
companies);
 qualify as small;22
 demonstrate a need for the desired credit and that the funds are not available from
alternative sources, including personal resources of the principals; and
 be certified by a lender that the desired credit is unavailable to the applicant on
reasonable terms and conditions from nonfederal sources without SBA
assistance.23

interim financing, often one with a shorter duration and higher interest rate]. ...An interim lender (either the Third Party
Lender or another lender) provides the interim financing to cover the period between SBA approval of the project and
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.
22 P.L. 111-240, the Small Business Jobs Act of 2010, required the SBA 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
use of industry standards. At the time of passage, the 7(a) program used industry-specific size standards and the
504/CDC program used maximum net worth of $8.5 million and maximum average net income of $3 million to
determine program eligibility. The act establishes the following alternative size standard for both the 504/CDC and 7(a)
programs on an interim basis: the business qualifies as small if it does not have a tangible net worth in excess of
$15 million and does not have an average net income after federal taxes (excluding any carry-over losses) in excess of
$5 million for two full fiscal years before the date of application. For further analysis concerning SBA size standards,
see CRS Report R40860, Small Business Size Standards: A Historical Analysis of Contemporary Issues, by Robert Jay
Dilger.
23 13 C.F.R. §120.100; and 13 C.F.R. §120.101.
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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
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.24
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;
 sufficient invested equity to operate on a sound financial basis;
 potential for long-term success;
 nature and value of collateral (although inadequate collateral will not be the sole
reason for denial of a loan request); and
 affiliates’ effect on the applicant’s repayment ability.25
Borrower Program Requirements
Use of Proceeds
A 504/CDC loan can be used to
 purchase land and make necessary improvements to the land, such as adding
streets, curbs, gutters, parking lots, utilities, and landscaping;
 purchase buildings and make improvements to the buildings, such as altering the
building’s facade and updating its heating and electrical systems, plumbing, and
roofing;
 purchase, transport, dismantle, or install machinery and equipment, provided the
machinery and equipment have a useful life of at least 10 years;
 purchase essential furniture and fixtures;
 pay professional fees that are directly attributable and essential to the project,
such as title insurance, title searches and abstract costs, surveys, and zoning
matters;
 finance short-term debt (bridge financing) for eligible expenses that are directly
attributable to the project and the financing term is three years or less;

24 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.
25 13 C.F.R. §120.150.
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 pay interim financing costs, including points, fees, and interest;
 create a contingency fund, provided the fund does not exceed 10% of the
project’s construction costs;
 finance “do-it-yourself” construction expenses, including renovations and the
installation of machinery and equipment; and
 finance permissible debt refinancing with or without business expansion.26
A 504/CDC loan cannot be used for working capital or inventory.
Job Creation and Retention Requirement
All 504/CDC borrowers must meet at least one of two specified economic development
objectives. First, borrowers, other than small manufacturers, must create or retain at least one job
for every $75,000 of project debenture within two years of project completion.27 Borrowers who
are small manufacturers (defined as a small business with its primary North American Industry
Classification System Code in Sectors 31, 32, and 33 and all of its production facilities located in
the United States) must create or retain at least one job per $120,000 of project debenture within
two years of project completion.28
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
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
requirement is allowed only if the CDC “can reasonably show that jobs would be lost to the
community if the project was not done.”29
If the borrower does not meet the job creation or retention requirement, the borrower can retain
eligibility 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 overall portfolio of
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
project debenture for projects located in special geographic areas such as Alaska, Hawaii, state-
designated enterprise zones, empowerment zones, enterprise communities, labor surplus areas, or

26 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.
27 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
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 2009, increased that amount to every $65,000 guaranteed by the
Administration.
28 Previously, P.L. 108-447, the Small Business Reauthorization and Manufacturing Assistance Act of 2004, had
required small manufactures to create or retain at last one job for every $100,000 guaranteed by the Administration.
29 SBA “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 453. The 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
in FY2018, and 52,701 jobs in FY2021. See SBA, FY2021 Congressional Budget Justification and FY2019 Annual
Performance Report
, p. 31.
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opportunity zones).30 Loans to small manufacturers are excluded from the calculation of this
average.31
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
redevelopment plan;
 expanding exports;
 expanding the development of women-owned and -controlled small businesses;
 expanding small businesses owned and controlled by veterans (especially
service-disabled veterans);
 expanding minority enterprise development;
 aiding rural development;
 increasing productivity and competitiveness (e.g., retooling, robotics,
modernization, and competition with imports);
 modernizing or upgrading facilities to meet health, safety, and environmental
requirements;
 assisting businesses in or moving to areas affected by federal budget reductions,
including base closings, either because of the loss of federal contracts or the
reduction in revenues in the area due to a decreased federal presence; or
 reducing unemployment rates in labor surplus areas, as defined by the U.S.
Department of Labor.32
The three energy reduction goals are
 reducing existing energy consumption by at least 10%;
 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

30 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.
31 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.
32 13 C.F.R. §120.862.
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that reduce the use of nonrenewable resources and minimize environmental
impact; or
 upgrading plant, equipment, and processes involving renewable energy sources
such as the small-scale production of energy for individual buildings’ or
communities’ consumption, commonly known as micropower, or renewable fuel
producers including biodiesel and ethanol producers.33
If the project cannot meet any of these guidelines, then the debenture amount must be reduced to
meet the job creation or retention requirement.34
Loan Amounts
The minimum 504/CDC debenture is $25,000. P.L. 111-240, the Small Business Jobs Act of
2010, increased the maximum gross debenture amount
 from $1.5 million to $5 million for regular 504/CDC loans;
 from $2 million to $5 million if the loan proceeds are directed toward one or
more of the public policy goals described above;
 from $4 million to $5.5 million for small manufacturers;
 from $4 million to $5.5 million for projects that reduce the borrower’s energy
consumption by at least 10%; and
 from $4 million to $5.5 million for projects for plant, equipment, and process
upgrades of renewable energy sources, such as the small-scale production of
energy for individual buildings or communities consumption (commonly known
as micropower), or renewable fuel producers, including biodiesel and ethanol
producers.35
Loan Terms, Interest Rate, and Collateral
Loan Terms
The SBA determines the 504/CDC program’s loan terms and publishes them in the Federal
Register
.36 The current maturity for a 504/CDC loan is generally
 20 or 25 years for real estate;
 10 years for machinery and equipment; and
 10, 20, or 25 years based upon a weighted average of the useful life of the assets
being financed.37
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
25 years.38

33 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 454.
34 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 455.
35 P.L. 111-240, §1112. Maximum Loan Amounts Under 504 Program.
36 13 C.F.R. §120.933.
37 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018.
38 13 C.F.R. §120.921; and SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536,
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Interest Rates
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
between the lender and the borrower, and is subject to an interest rate cap.39
The third-party loan’s interest rate “must be reasonable” and the interest rate cap is published by
the SBA in the Federal Register. The current maximum interest rate that a third-party lender is
allowed 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,
whichever is less.40
Borrowers have a general sense of what their 504/CDC loan’s interest rate will be when their
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
private investors (typically large institutional investors such as pension funds, insurance
companies, and large banks). Investors receive interest on the debt, called a debenture, semi-
annually. Borrowers make monthly payments.
The 504/CDC loan’s interest rate has several components: the debenture interest rate (i.e., the rate
that determines interest paid semi-annually to investors who purchase the debenture), the note
rate (i.e., the monthly-pay equivalent of the debenture rate, which is typically four to eight basis
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
to CDCs on a full-term basis and in 5-year increments.41
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
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
SBA and Treasury before proceeding.42
The 10-year 504/CDC debenture rate (set bimonthly) was 0.84% in May 2021. The comparable
Treasury market rate was 0.79%, the note rate was 0.87394%, and the effective full-term interest
rate was 2.623%.43
The 20-year 504/CDC debenture rate (set monthly) is 1.29% in June 2021. The comparable
Treasury market rate is 1.49%, the note rate is 1.31461%, and the effective full-term interest rate
is 2.77%.44

April 4, 2018.
39 SBA, “504 Loans and Debentures With 25 Year Maturity,” 83 Federal Register 14536, April 4, 2018; and 13 C.F.R.
§120.921.
40 13 C.F.R. §120.921; and SBA, “Reporting and Recordkeeping Requirements Under OMB Review,” 77 Federal
Register
59447, September 27, 2012.
41 Effective rates do not include the impact of upfront fees and therefore are not APRs. APRs (annual percentage rates)
represent the actual yearly cost of funds over the term of a loan.
42 13 C.F.R. §120.932; and Eagle Compliance, LLC, “How Effective Rates are Calculated,” at
https://www.eaglecompliance504.com/monthly-504-interest-rate.html.
43 Eagle Compliance, LLC, “Monthly 504 Interest Rate, May 2021 Funding Rates,” at
https://nebula.wsimg.com/df553b9caf03c28523dc1898465adff1?AccessKeyId=EA7D1AA43344749CDDA0&disposit
ion=0&alloworigin=1.
44 Eagle Compliance, LLC, “Monthly 504 Interest Rate, June 2021 Funding Rates,” at
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The 25-year 504/CDC debenture rate (set monthly) is 1.47% in June 2021. The comparable
Treasury market rate is 1.49%, the note rate is 1.4916%, and the effective full-term interest rate is
2.887%.45
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.46
If one or more of the above factors is not met, additional collateral or increased equity
contributions may be required. All 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
lapse of coverage.47 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
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
available or outside sources of repayment.”48
CDC Eligibility Standards, Operating
Requirements, and Program Requirements

CDC Eligibility Standards
CDCs apply to the SBA for certification to participate in the 504/CDC program. A CDC must be a
nonprofit corporation,49 and it must
 be in good standing in the state in which it is incorporated;
 be in compliance with all laws, including taxation requirements, in the state in
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, June 2021”).
45 Eagle Compliance, LLC, “Monthly 504 Interest Rate, June 2021.”
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).
46 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 485.
47 13 C.F.R. §120.934.
48 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 246.
49 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.
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 provide the SBA a copy of its IRS tax exempt status, organizational chart, articles
of incorporation, bylaws, plan of operation, and operating budget;
 indicate its area of operations, which is the state of the CDC’s incorporation;50
and
 have a board of directors that fulfills specified requirements, such as having at
least nine voting members, requiring a quorum of at least 50% of its voting
membership to transact business, and meets at least quarterly.51
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
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
factors that may be considered in determining satisfactory performance include the CDC’s risk
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).52
In FY2020, 208 CDCs provided at least one 504/CDC loan.53
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.54 In addition, multistate
CDCs are required to have a separate loan committee “for each state into which the CDC
expands.”55

50 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).
51 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
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. See SBA, “504 and 7(a) Loan
Programs Updates,” 79 Federal Register 15641, 15644-15646, March 21, 2014.
52 13 C.F.R. §120.812.
53 SBA, FY2022 Congressional Justification and FY2020 Annual Performance Report, p. 40, at
https://www.sba.gov/document/report-congressional-budget-justification-annual-performance-report.
54 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.
55 See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 85.
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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”
and “directly employ full-time professional management,” typically including an executive
director (or the equivalent) to manage daily operations.56
CDCs are also required to operate “in accordance with all SBA loan program requirements” and
provide the SBA “current and accurate information about all certification and operational
requirements.”57 CDCs with 504/CDC loan portfolio balances of $30 million or more are required
to submit financial statements audited in accordance with generally accepted accounting
principles (GAAP) by an independent certified public accountant (CPA). CDCs with 504/CDC
loan portfolio balances of less than $30 million must, at a minimum, submit a review of their loan
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.58
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;
 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

56 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-
time management may also work on and operate the other entity’s economic development programs, but must be
available to small businesses interested in the 504 Loan Program and to 504 loan borrowers during regular business
hours; or (ii) the requesting CDC is rural and has insufficient loan volume to justify having management employed
directly by the CDC. The rural CDC must contract with another CDC located (i.e., incorporated) in the same general
area.” See SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 90.
57 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 93.
58 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 95.
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 other relevant information (e.g., if the application involves a franchise and the
success of the franchise).59
CDCs submit this information, using required SBA forms, to the Sacramento, CA, loan
processing center.
Accredited Lender Program Status
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
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
actions.60 P.L. 103-403, the Small Business Administration Reauthorization and Amendments Act
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
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
cooperation with all SBA offices.61 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
decision to guarantee the debenture. About one-third of CDCs in FY2019 had ALP status (77 of
226) and they account for about 60% to 70% of all 504/CDC lending each year.62
Premier Certified Lenders Program Status
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
1, 2002, and given permanent statutory authorization by P.L. 106-554, the Consolidated
Appropriations Act, 2001 (§1: H.R. 5667, the Small Business Reauthorization Act of 2000).63
ALP-CDCs must apply to the SBA 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
same terms and conditions as other 504/CDC loans, but the SBA delegates to the PCLP-CDC all
loan approval decisions, except eligibility. Selection is based on several factors, including all of
the factors used to assess ALP status plus evidence that the CDC has established a Loan Loss
Reserve Fund (LLRF) in compliance with all requirements [described below], has a demonstrated
ability “to process, close, service and liquidate 504 and/or PCLP loans,” and has satisfactory SBA
performance.64

59 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 476-484.
60 SBA, “Loans to State and Local Development Companies Accredited Lenders Program for Certified Development
Companies,” 60 Federal Register 20391, April 26, 1995.
61 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 74-76.
62 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.
63 P.L. 105-135, the Small Business Reauthorization Act of 1997, extended the program’s authorization to October 1,
2002.
64 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” pp. 77, 78.
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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
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.65
As of September 30, 2017, 15 CDCs had active PCLP status.66 In recent years, the number and
amount of 504/CDC loans made through the PCLP program have declined. In FY2009, 373 PCLP
loans amounting to $185.4 million were disbursed. In FY2019, 22 PCLP loans totaling $14
million were disbursed.67
Real Estate Appraisals
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
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
property is equal to or less than the federal banking regulator appraisal threshold “and such
appraisal is necessary for appropriate evaluation of creditworthiness.”68 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.69
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.70
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.71 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.72

65 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 79.
66 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017. All PCLP-
CDCs have ALP status as that is a requirement for being provided PCLP authority.
67 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.
68 15 U.S.C. §696(3)(E)(ii). The 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
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.
69 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 260.
70 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 515.
71 GAO, Small Business Administration: Actions Needed to Ensure Planned Improvements Address Key Requirements
of the Development Company (504) Loan Program
, GAO-14-233, March 6, 2014, p. 5, at http://www.gao.gov/assets/
670/661428.pdf.
72 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458.
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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
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
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
transmittal letter or spreadsheet. As mentioned, because the 504/CDC program provides
permanent or take-out financing, an interim lender (either the third-party lender or another lender)
typically 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
amount of the project costs that it advanced on an interim basis.73
Loan Guaranty and Servicing Fees
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
fees are charged by the SBA to the CDC and others are charged by the CDC directly to the
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.74 The SBA elected not to charge this fee in FY2009-FY2011, and FY2016-FY2018.
The SBA charged this fee in FY2012-FY2015, FY2019-FY2020, and at the outset of FY2021.75

73 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 458.
74 13 C.F.R. §120.971(d).
75 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/
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
October 1, 2019,” September 16, 2019, at https://www.sba.gov/sites/default/files/resource_files/
504_Fees_Effective_October_1_2019_0.pdf; and SBA, “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 (hereinafter SBA, “SBA Information Notice: 504 Fees Effective During Fiscal Year 2021”).
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As mentioned, P.L. 116-260, appropriated $1.918 billion for SBA loan enhancements, including
the waiver of the 504/CDC guaranty fee from the date of enactment (December 27, 2020) through
September 30, 2021.
Servicing Fee
The SBA is authorized to charge CDCs an ongoing servicing fee paid monthly by the borrower
and adjusted annually 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
under the 504/CDC program or 0.9375% per annum of the unpaid principal balance of the loan.76
The SBA’s servicing fee for FY2021 is 0.4517% of the unpaid principal balance for regular
504/CDC loans and 0.4865% for 504 refinancing loans.77
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.78
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.79
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, 1996.80
The fee may be paid by the third-party lender, CDC, or borrower.
CDC Fees
CDCs are allowed to charge borrowers a processing (or packaging) fee, closing fee, servicing fee,
late fee, assumption fee, CSA fee, other agent fees, and underwriters’ fee.

76 15 U.S.C. §697(b)(7)(A)(i); and 13 C.F.R. §120.971(d).
77 SBA, “SBA Information Notice: 504 Fees Effective During Fiscal Year 2021.”
The SBA’s annual servicing fee was 0.749% in FY2011, 0.9375% in FY2012-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
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 FY2019; and 0.3205%
for regular 504/CDC loans and 0.3220% for 504/CDC refinancing loans in FY2020.
78 13 C.F.R. §120.971(e).
79 13 C.F.R. §120.972.
80 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.
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Processing (or Packaging) Fee
The CDC is allowed 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
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.81
As mentioned, P.L. 116-260, appropriated $1.918 billion for SBA loan enhancements, including
the waiver of the 504/CDC processing fee from the date of enactment (December 27, 2020)
through September 30, 2021. The SBA will reimburse CDCs 1.5% of the net debenture proceeds
for not imposing the processing fee.
Closing Fee
The CDC is also allowed to charge “a reasonable closing fee sufficient to reimburse it for the
expenses of its in-house or outside legal counsel, and other miscellaneous closing costs.”82 Up to
$2,500 in closing costs may be financed out of the debenture proceeds.83
Servicing Fee
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
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
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
parties involved in 504/CDC financing under a master servicing agent agreement with the SBA.84
Late Fee and Assumption Fee
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 will be collected by the CSA on
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.85
Central Servicing Agent Fee
CSAs are allowed 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
fee is 0.1% per annum of the loan amount.86 Also, “agent fees and charges necessary to market
and service debentures and certificates may be assessed to the borrower or the investor.”87 CDCs
must review the agent’s services and related fees “to determine if the fees are necessary and

81 13 C.F.R. §120.971(a)(1).
82 13 C.F.R. §120.971(a)(2).
83 13 C.F.R. §120.883(e).
84 13 C.F.R. §120.971(a)(3).
85 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.
86 SBA, “Servicing Loan Agreement,” at https://www.sba.gov/sites/default/files/forms/SBA_Form_1506.pdf.
87 13 C.F.R. §120.971(c).
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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.”88 In cases in which fees
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
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.”89
Underwriters’ Fee
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.90 Underwriters
are approved by the SBA to form debenture pools and arrange for the sale of certificates.
Fee Subsidies
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 $150,000 to 90%
for all standard 7(a) loans.91 The last extension, P.L. 111-322, the Continuing Appropriations and
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
funding provided by the Small Business Jobs Act of 2010 for this purpose was exhausted (which
occurred on January 3, 2011).92
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.”93 Critics

88 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196.
89 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 196.
90 SBA, “SOP 50 10 6: Lender and Development Company Loan Programs,” p. 192.
91 P.L. 111-5, the ARRA, provided $375 million for fee subsidies and the 7(a) program’s 90% guaranty for all standard
7(a) loans. ARRA’s funding for these purposes was 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
and 90% guaranty through February 28, 2010. P.L. 111-144, the Temporary Extension Act of 2010, enacted on March
2, 2010, provided $60 million to extend the fee subsidies and 90% guaranty through March 28, 2010. P.L. 111-150, an
act to extend the Small Business Loan Guarantee Program, enacted on March 26, 2010, authorized the use of $40
million in SBA-appropriated funds to extend the fee subsidies 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 subsides and
90% guaranty through May 31, 2010. P.L. 111-240, the Small Business Jobs Act of 2010, enacted on September 27,
2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee subsidies and 90%
guaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface Transportation
Extensions Act, 2011, authorized the SBA to continue the fee subsidies and 90% guaranty through March 4, 2011, or
until the funding provided by the Small Business Jobs Act of 2010 for these purposes was exhausted (which occurred
on January 3, 2011).
92 On January 3, 2011, the SBA announced it had formed a SBA Loan Queue for loan applicants should any funding
with the enhancements become available from loan cancellations. Typically, 7% to 10% of previously approved SBA
loans are later canceled by the borrower or lender and are not disbursed for a variety of reasons. See 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 SBA, “Statement from Administrator Mills on Continuing Support for Small Businesses through SBA Recovery
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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.94
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.95
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. 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 and the number
and amount of 504/CDC loans after cancellations and other modifications are taken into account
in FY2005-FY2020. 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

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.
94 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/.
95 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.
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continuation of 504/CDC fee subsidies, which were in place through most of FY2010 and the first
quarter of FY2011.96
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).97
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 somewhat
since then.
Table 2. Number and Amount of 504/CDC Loans, FY2005-FY2020
($ 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
2009
6,608
5,471
$3.83
$3.09
2010
7,833
6,642
$4.47
$3.68
2011
8,015
6,913
$4.99
$4.19
2012
9,594
8,399
$7.28
$6.34
2013
7,708
6,626
$5.23
$4.33
2014
5,885
5,246
$4.20
$3.70
2015
5,787
5,313
$4.30
$3.94
2016
5,938
5,557
$4.74
$4.94
2017
6,218
5,925
$5.01
$4.23
2018
5,874
5,774
$4.75
$4.38
2019
6,099
6,006
$4.96
$4.89
2020
7,119
NA
$5.83
NA
Source: U.S. Small Business Administration, Office of Congressional and Legislative Affairs, “WDS Report
Amount and Count Summary, September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,”

96 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 $12 Billion in SBA Lending to Small Businesses in Just Three Months,”
January 3, 2011, at https://www.sba.gov/content/jobs-act-supported-more-12-billion-sba-lending-small-businesses-just-
three-months.
97 The expanded 504/CDC refinancing program became operational on February 17, 2011, began accepting loan
applications on February 28, 2011, and ended on September 27, 2012. See SBA, “Temporary 504 Loan Refinancing for
Eligible Small Business Assets Under the Jobs Act: Fact Sheet,” at https://thebusinesstimes.com/504-loan-refinancing-
program/.
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October 18, 2018; and U.S. Small Business Administration, “SBA Lending Statistics for Major Programs (as of
September 30, 2020),” at https://www.sba.gov/sites/default/files/2020-10/WebsiteReport_asof_20200930-508.pdf.
Table 3. Number and Amount of 504/CDC Refinance Loans,
FY2011, FY2012, FY2016-FY2019
($ amounts in millions)
Amount of the
Debentures
Amount of the
(after
Number
Number (after
Debentures
modifications and
Fiscal Year
Approved
full cancellations)
Approved
cancellations)
2011
307
272
$255.3
$226.0
2012
2,424
2,119
$2,268.2
$2,007.2
2016
45
41
$41.4
$38.9
2017
266
244
$287.4
$262.3
2018
181
166
$154.1
$142.7
2019
166
161
$154.8
$149.7
Total
3,389
3,003
$3,161.2
$2,826.8
Source: U.S. Small Business Administration, Office of Congressional and Legislative Affairs, “WDS Report
Amount and Count Summary, September 30, 2019: DRAFT Table 2.7. Approvals by Program and Cohort,”
October 18, 2018.
Appropriations for Subsidy Costs
The SBA’s goal is to achieve a zero subsidy rate for its loan guaranty programs. A zero subsidy
rate occurs when the SBA’s loan guaranty programs generate sufficient revenue through fees and
recoveries of collateral on purchased (defaulted) loans to not require appropriations to issue new
loan guarantees.
As indicated in Table 4, fees and recoveries did not generate enough revenue to cover 7(a) loan
losses from FY2010 through FY2013, and in FY2020 and FY2021. Appropriations were provided
to address the shortfalls.
The 504/CDC loan guaranty program experienced loan losses from FY2012 through FY2015.
Appropriations were provided to address the shortfalls.
Table 4. Business Loan Credit Subsidies, 7(a) and 504/CDC Loan Guaranty
Programs, FY2005-FY2022
($ amounts in millions)
FY
7(a)
504/CDC
Total Subsidy
2005
$0.0
$0.0
$0.0
2006
$0.0
$0.0
$0.0
2007
$0.0
$0.0
$0.0
2008
$0.0
$0.0
$0.0
2009
$0.0
$0.0
$0.0
2010
$80.0
$0.0
$80.0
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FY
7(a)
504/CDC
Total Subsidy
2011
$80.0
$0.0
$80.0
2012
$139.4
$67.7
$207.1
2013
$213.8
$102.5
$316.3
2014
$0.0
$107.0
$107.0
2015
$0.0
$45.0
$45.0
2016
$0.0
$0.0
$0.0
2017
$0.0
$0.0
$0.0
2018
$0.0
$0.0
$0.0
2019
$0.0
$0.0
$0.0
2020
$99.0
$0.0
$99.0
2021
$15.0
$0.0
$15.0
2022 request
$0.0
$0.0
$0.0
Source: P.L. 108-447, Consolidated Appropriations Act, 2005; P.L. 109-108, the Science, State, Justice,
Commerce and Related Agencies Appropriations Act, 2006; U.S. Small Business Administration (SBA),
Congressional Budget Justification: FY2008 Annual Performance Report, p. 17; SBA, FY2010 Congressional Budget
Justification and FY2008 Annual Performance Report
, p. 11; SBA, FY2011 Congressional Budget Justification and FY2009
Annual Performance Report
, p. 19; SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance
Report
, p. 22; SBA, FY2013 Congressional Budget Justification and FY2011 Annual Performance Report, p. 19; SBA,
FY2014 Congressional Budget Justification and FY2012 Annual Performance Report, p. 25; SBA, FY2015 Congressional
Budget Justification and FY2013 Annual Performance Report
, p. 24; P.L. 113-235, the Consolidation and Further
Continuing Appropriations Act, 2015; P.L. 114-113, the Consolidated Appropriations Act, 2016, P.L. 115-31, the
Consolidated Appropriations Act, 2017; P.L. 115-141, the Consolidated Appropriations Act, 2018; P.L. 116-6,
the Consolidated Appropriations Act, 2019; P.L. 116-93, the Consolidated Appropriations Act, 2020; P.L. 116-
260, the Consolidated Appropriations Act, 2021; and U.S. Small Business Administration, FY2022 Congressional
Justification and FY2020 Annual Performance Report
, p. 8.
Notes: The Microloan program also receives a credit subsidy, primarily for providing below market interest
rates to Microloan intermediaries. The subsidies were $1.45 million in FY2005, $1.3 million in FY2006 and
FY2007, $2.0 million in FY2008, $8.5 million in FY2009 ($6 million added by P.L. 111-5, the American Recovery
and Reinvestment Act of 2009), $3.0 million in FY2010 and FY2011, $3.678 million in FY2012, $3.498 million
(after sequestration) in FY2013, $4.6 million in FY2014, $2.5 million in FY2015, $3.3 million in FY2016, $4.3
million in FY2017, $3.44 million in FY2018; $4 million in FY2019; $5 million in FY2020, and $12 million in
FY2021. The Biden Administration has requested $6 million for Microloan credit subsidies in FY2022.
In addition, P.L. 116-136, the CARES Act, appropriated $17 billion and 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) appropriated $3.5 billion for loan credit subsidies related to the provision of monthly debt relief payments
to 7(a), 504/CDC, and Microloan borrowers. P.L. 116-260 also appropriated $1.918 billion for 7(a) and
504/CDC loan credit subsidies related to temporarily increasing the 7(a) loan guarantee to 90%, temporarily
increasing the SBAExpress program’s maximum loan amount to $1 million, temporarily increasing the
SBAExpress program’s loan guarantee from 50% to 75% for loans of $350,000 and less, and waiving specified 7(a)
and 504/CDC fees.
Use of Proceeds and Borrower Satisfaction
In FY2016 (the latest available data), borrowers used 504/CDC loan proceeds to
 purchase land and existing building (51.56%),
 building (construction, remodeling, improvements, etc.) (21.10%),
 machinery and equipment (purchase, installation, etc.) (7.09%),
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 make renovations to a building (4.90%),
 purchase land (5.18%),
 other expenses (eligible contingency expenses, interim interest, etc.) (2.84%),
 purchase improvements (2.30%),
 debt to be refinanced (1.51%),
 professional fees (appraiser, architect, legal, etc.) (1.41%),
 add an addition to a building (1.04%),
 purchase or install fixtures (0.55%), or
 make leasehold improvements to a building (0.52%).98
In 2008, the Urban Institute surveyed 504/CDC borrowers and found that two-thirds of the
respondents rated their overall satisfaction with their 504/CDC loan and loan terms as either
excellent (21%) or good (45%). About one out of every four borrowers (23%) rated their overall
satisfaction with their loan and loan terms as fair, 8% rated their overall satisfaction as poor, and
4% reported that they did not know or did not respond.99 In addition, 87% of the survey’s
respondents reported that the 504/CDC loan was either very important (53%) or somewhat
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).100
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 small businesses
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
to existing small businesses and 15% went to new small businesses.101
Borrower Demographics
In 2008, the Urban Institute found that about 9.9% of private-sector small business loans were
issued to minority-owned small businesses and about 16% of those loans were issued to women-
owned businesses.102 In FY2020, 22.7% of the total amount of 504/CDC approved loans went to
minority-owned businesses (13.0% Asian, 6.9% Hispanic, 1.4% African American, 1.3% multi-
group, and 0.1% Native American) and 9.0% went to women-owned businesses.103 Based on its

98 SBA, Office of Congressional and Legislative Affairs, correspondence with the author, August 24, 2017.
99 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.
100 Christopher Hayes, An Assessment of Small Business Administration Loan and Investment Performance: Survey of
Assisted Businesses
, p. 5.
101 GAO, Small Business Administration: Actions Needed to Ensure Planned Improvements Address Key Requirements
of the Development Company (504) Loan Program
, GAO-14-233, March 6, 2014, p. 8, at http://www.gao.gov/assets/
670/661428.pdf.
102 Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 Programs
(Washington, DC: The Urban Institute, 2008), p. 13, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
103 SBA, “SBA Lending Statistics for Major Programs (as of September 30, 2020).”
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comparative analysis of private-sector small 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-
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
for loans made under the 7(a) and 504 programs to these types of firms were substantially
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
SBA’s objective of making credit available to firms that face a capital opportunity gap.104
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
$150,000 to 90% for all standard 7(a) loans.105 The Obama Administration argued that this
additional funding improved the small business lending environment, increased both the number
and amount of SBA guaranteed loans, and supported hundreds of thousands of jobs.106 Critics
argued that small business tax reduction, reform of financial credit market regulation, and federal
fiscal restraint are a better means to assist small business economic growth and job creation.107

104 Kenneth Temkin, Brett Theodos, with Kerstin Gentsch, Competitive and Special Competitive Opportunity Gap
Analysis of the 7(A) and 504 Programs
(Washington, DC: The Urban Institute, 2008), p. 21, at http://www.urban.org/
UploadedPDF/411596_504_gap_analysis.pdf.
105 P.L. 111-5, the ARRA, provided $375 million for fee subsidies and the 7(a) program’s 90% guaranty for all
standard 7(a) loans. ARRA’s funding for these purposes was 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 and 90% guaranty through February 28, 2010. P.L. 111-144, the Temporary Extension Act of 2010,
enacted on March 2, 2010, provided $60 million to extend the fee subsidies and 90% guaranty through March 28, 2010.
P.L. 111-150, an act to extend the Small Business Loan Guarantee Program, enacted on March 26, 2010, authorized the
use of $40 million in SBA-appropriated funds to extend the fee subsidies 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
subsides and 90% guaranty through May 31, 2010. P.L. 111-240, the Small Business Jobs Act of 2010, enacted on
September 27, 2010, provided $505 million (plus $5 million for related administrative expenses) to extend the fee
subsidies and 90% guaranty through December 31, 2010. P.L. 111-322, the Continuing Appropriations and Surface
Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and 90% guaranty through
March 4, 2011, or until the funding provided by the Small Business Jobs Act of 2010 for these purposes was exhausted
(which occurred on January 3, 2011).
106 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/content/sba-recovery-
lending-extended-through-april-30.
107 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/.
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As mentioned, P.L. 116-136, the CARES Act, and 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) appropriated $17 billion and $3.5 billion, respectively, to provide
monthly debt relief payments for 7(a), 504/CDC, and Microloan borrowers. P.L. 116-260 also
appropriated $1.918 billion 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
September 30, 2021.
Program Administration
The SBA’s Office of Inspector General (OIG) and the GAO have independently reviewed the
administration of SBA’s loan guaranty programs. Both agencies have reported deficiencies that
they argued needed to be addressed, including issues involving the oversight of 504/CDC lenders.
On March 23, 2010, the SBA’s OIG released the results of an audit of “25 of 100 statistically
selected CDC/504 loans approved under Premier Certified Lender (PCL) authority that were
disbursed during fiscal year (FY) 2008.”108 The loans “had been approved by 3 of the most active
of the 24 PCLs” operating in 2008.109
The audit was initiated “based on concerns that PCLs were engaging in risky underwriting
practices and that five PCLs were paying their executives excessive compensation.”110 The OIG
determined that
PCLs may not have used prudent practices in approving and disbursing 68% of the sampled
loans, totaling nearly $8.9 million, due to poor loan underwriting, and eligibility or loan
closing issues. Specifically, 40% of the loans had faulty underwriting repayment analyses,
and 52% of the loans had eligibility and/or loan closing issues.... Projecting our sample
results to the universe of CDC/504 loans disbursed in 2008 by these three PCLs, we
estimate with 90% confidence that at least 572 loans, totaling nearly $254.9 million in
CDC/504 loan proceeds, had weaknesses in the underwriting process, eligibility
determinations or loan closing. Of this amount, we estimate that a minimum of 183 loans,
totaling $56.4 million or more, were made to borrowers based on faulty repayment
analyses. We also estimate that lenders disbursed $209 million or more to borrowers who
had eligibility and/or loan closing issues.111
In terms of dollars paid for CDC executive compensation, the OIG found that
4 of the 5 CDCs reviewed were among the top 10 highest for executive compensation.... In
terms of percentage of gross receipts spent on executive compensation, 3 of the 5
questioned CDCs ranked among the top 10 highest of the 56 CDCs that had gross receipts
over $1 million.112
The OIG made several recommendations to address these issues, including changing the SBA’s
Standard Operating Procedures (SOP) to require lenders to use

108 SBA, Office of the Inspector General, “Report on Audit of Premier Certified Lenders in the Section 504 Loan
Program,” March 23, 2010, p. 20, at https://www.sba.gov/content/10-10-audit-premier-certified-lenders-section-504-
loan-program (hereinafter SBA, OIG, “Report on Audit of Premier Certified Lenders”).
109 SBA, OIG, “Report on Audit of Premier Certified Lenders.”
110 SBA, OIG, “Report on Audit of Premier Certified Lenders,” p.1.
111 SBA, OIG, “Report on Audit of Premier Certified Lenders,” pp. 3, 4.
112 SBA, OIG, “Report on Audit of Premier Certified Lenders,” p. 4.
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(1) the actual cash flow method to determine borrower repayment ability for businesses
using accrual accounting, (2) historical salary levels to estimate salaries of the borrower’s
officers, and (3) historical sales data to make sales projections.113
It also recommended that the SBA develop a process “to ensure that corrective actions are taken
in response to the Agency’s onsite reviews to ensure these conditions do not continue, and/or
guidance for these reviews should be modified, as appropriate, to ensure that reviewers properly
assess lender determination of borrower repayment ability and eligibility.”114
The OIG reported that the SBA
disagreed that SOP 50 10 should be revised to strengthen lender repayment analyses by
requiring the use of the actual cash flow method and historical salary and sales data. The
Agency also did not believe an additional process was needed to ensure that corrective
actions are taken to improve lender performance, but acknowledged that better use of onsite
review results are needed to make more informed lender decisions and programmatic
determinations.115
In 2009, GAO released an analysis of the SBA’s oversight of the lending and risk management
activities of lenders that extend 7(a) and 504/CDC loans to small businesses. GAO recommended
that the SBA strengthen its oversight of these lenders and argued that although the SBA’s “lender
risk rating system has enabled the agency to conduct some off-site monitoring of lenders, the
agency does not use the system to target lenders for on-site reviews or to inform the scope of the
reviews.”116 GAO also noted that
the SBA targets for review those lenders with the largest SBA-guaranteed loan portfolios.
As a result of this approach, 97% of the lenders that SBA’s risk rating system identified as
high risk in 2008 were not reviewed. Further, GAO found that the scope of the on-site
reviews that SBA performs is not informed by the lenders’ risk ratings, and the reviews do
not include an assessment of lenders’ credit decisions.117
GAO argued that although the SBA “has made improvements to its off-site monitoring of lenders,
the agency will not be able to substantially improve its lender oversight efforts unless it improves
its on-site review process.”118
As mentioned, in recent years, both the number and amount of 504/CDC loans made through the
PCLP has declined. In FY2009, 373 PCLP loans amounting to $185.4 million were disbursed. In
FY2019, 22 PCLP loans totaling $14 million were disbursed.119
In addition, the SBA’s Office of Credit Risk Management (OCRM) created new metrics in 2015
for monitoring 504/CDC lender loan performance called 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 those metrics in 2016.120

113 SBA, OIG, “Report on Audit of Premier Certified Lenders,” pp. 4, 5.
114 SBA, OIG, “Report on Audit of Premier Certified Lenders,” p. 5.
115 SBA, OIG, “Report on Audit of Premier Certified Lenders.”
116 GAO, Small Business Administration: Actions Needed to Improve the Usefulness of the Agency’s Lender Risk
Rating System
, GAO-1-53, November 6, 2009, p. i, at http://www.gao.gov/new.items/d1053.pdf. (hereinafter GAO,
SBA: Actions to Improve Usefulness of Agency’s Lender Risk Rating System.)
117 GAO, SBA: Actions to Improve Usefulness of Agency’s Lender Risk Rating System, pp. i, 27-30.
118 GAO, SBA: Actions to Improve Usefulness of Agency’s Lender Risk Rating System, p. 35.
119 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.
120 SBA, Office of Inspector General, “The SBA’s Portfolio Risk Management Program Can be Strengthened,” July 2,
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SMART is designed to “assist OCRM in identifying high risk lenders and ensuring that lender
oversight drives meaningful review activities, findings, and corrective actions that reduce risk to
the SBA.”121 OCRM also created a “detailed bench-marking analysis 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.”122
Legislative Activity During the 111th Congress
Congress approved legislation in 2009 (ARRA) that provided the SBA an additional $730
million, including $299 million to temporarily reduce fees in the SBA’s 504/CDC loan guaranty
and 7(a) programs and $76 million to temporarily increase the 7(a) program’s loan guaranty from
up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000.123
Congress approved legislation in 2010 (P.L. 111-240, the Small Business Jobs Act of 2010) that
was designed to enhance small business access to capital. Among other provisions, the act
 provided $510 million to extend the 504/CDC and 7(a) loan guaranty programs’
fee subsidies and the 7(a) program’s 90% maximum loan guaranty percentage
through December 31, 2010 (later extended to March 4, 2011) or until available
funding was exhausted (which occurred on January 3, 2011);
 increased the 504/CDC program’s loan limits from $1.5 million to $5 million for
regular 504/CDC loans; from $2 million to $5 million if the loan proceeds are
directed toward one or more of the program’s specified public policy goals; from
$4 million to $5.5 million for small manufacturers; from $4 million to $5.5
million for projects that reduce the borrower’s energy consumption by at least
10%; and from $4 million to $5.5 million for projects for plant, equipment, and
process upgrades of renewable energy sources, such as the small-scale production
of energy for individual buildings or communities consumption (commonly
known as micropower), or renewable fuel producers, including biodiesel and
ethanol producers;
 temporarily expanded, for two years after enactment (through September 27,
2012), the types of projects eligible for 504/CDC program refinancing of existing
commercial debt;124 and

2013, p. 19, at https://www.sba.gov/sites/default/files/oig/Audit%20Evaluation%20Report%2013-
17%20The%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf, SBA,
“SBA Information Notice 5000-1348: Revised Risk-Based Review Protocol for Certified Development Companies,”
October 3, 2017 (effective August 5, 2015), at https://www.sba.gov/sites/default/files/lender_notices/5000-1348.pdf;
and SBA, “SBA Information Notice 5000-1398: Updated SMART Methodology for Oversight of CDCs,” October 3,
2017 (effective November 9, 2016), at https://www.sba.gov/sites/default/files/lender_notices/SBA_Info_Notice_5000-
1398_SM.pdf.
121 SBA, Office of Inspector General, “The 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-
17%20The%20SBA's%20Portfolio%20Risk%20Management%20Program%20Can%20Be%20Strengthened.pdf.
122 SBA, OIG, “The SBA’s Portfolio Risk Management Program Can be Strengthened.”
123 SBA, “Recovery Act Agency Plan,” May 15, 2009, at https://www.sba.gov/sites/default/files/recovery_act_reports/
sba_recovery_act_plan.pdf.
124 The act temporarily allowed 504/CDC loans to be used to refinance projects not involving expansions as long as the
financing did not exceed 90% of the value of the collateral for the financing, “except that, if the appraised value of the
eligible fixed assets serving as collateral for the financing is less than the amount equal to 125% of the amount of the
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 authorized the SBA to establish an alternative size standard for the 7(a) and
504/CDC programs that uses maximum tangible net worth and average net
income as an alternative to the use of industry standards and established an
interim size standard of a maximum tangible net worth of not more than $15
million and an average net income after federal taxes (excluding any carryover
losses) for the preceding two fiscal years of not more than $5 million.125
The Obama Administration argued that increasing maximum loan limit for SBA programs
(including the 504/CDC program) would allow the SBA to “support larger projects,” which
would “allow the SBA to help America’s small businesses drive long-term economic growth and
the creation of jobs in communities across the country.”126 The Administration also argued that
increasing the maximum loan limits for these programs will be “budget neutral” over the long run
and “help improve the availability of smaller loans.”127
Critics of increasing the SBA’s maximum loan limits argued that doing so might increase the risk
of defaults, resulting in higher guaranty fees or the need to provide the SBA additional funding.128
Others advocated a more modest increase in the maximum loan limits to ensure that the 7(a)
program “remains focused on startup and early-stage small firms, businesses that have
historically encountered the greatest difficulties in accessing credit” and “avoids making small
borrowers carry a disproportionate share of the risk associated with larger loans.”129
Others contended that creating a small business direct lending program within the SBA would
reduce paperwork requirements and be more efficient in providing small businesses access to
capital than modifying existing SBA programs that rely on private lenders to determine if they
will issue the loans.130 Others argued that providing additional resources to the SBA or modifying
the SBA’s loan programs as a means to augment small businesses’ access to capital is ill-advised.
In their view, the SBA has limited impact on small businesses’ access to capital. They argued that

financing, the borrower may provide additional cash or other collateral to eliminate any deficiency.” The refinancing
could be used only for commercial indebtedness incurred not less than two years before the date of the application for
assistance and only for eligible fixed assets (to acquire land, buildings, or equipment, or to construct a building). The
refinancing could not be used for indebtedness subject to a federal guarantee, and it had to be collateralized by eligible
fixed assets. The borrower also had to be current on all payments due on the existing debt for not less than one year
before the date of the application. The act limited the amount of refinancing to $7.5 billion each fiscal year. The act
also included an alternative job retention goal that allowed borrowers that do not meet the 504/CDC program’s job
creation and retention goals to participate in the expanded refinancing program, but limited that participation to “not
more than the product obtained by multiplying the number of employees of the borrower by $65,000.” See P.L. 111-
240, §1122. Low-Interest Refinancing Under the Local Development Business Loan Program.
125 At the time of passage, the 7(a) program used industry-specific size standards and the 504/CDC program used
maximum net worth of $8.5 million and maximum average net income of $3 million to determine program eligibility.
126 SBA, “Administration Announces New Small Business Commercial Real Estate and Working Capital Programs,”
February 5, 2010, at https://www2.illinois.gov/dceo/SmallBizAssistance/CenterConnect/WeeklyConnect/
SBA%20Fact%20Sheet%20CRE%20REFI%20and%20WORKING%20CAPITAL.docx (hereinafter SBA,
“Administration Announces New Small Business Commercial Real Estate and Working Capital Programs”).
127 SBA, “Administration Announces New Small Business Commercial Real Estate and Working Capital Programs.”
128 Robb Mandelbaum, “Small Business Incentives Face a Hard Road in Congress,” New York Times, February 12,
2010, at http://boss.blogs.nytimes.com/2010/02/12/small-business-incentives-face-a-hard-road-in-congress/.
129 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act Of 2009, report
to accompany H.R. 3854, 111th Cong., 2nd sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 1.
130 Robb Mandelbaum, “Why Won’t the S.B.A. Lend Directly to Small Businesses?” New York Times, March 10, 2010,
at http://boss.blogs.nytimes.com/2010/03/10/why-wont-the-s-b-a-loan-directly-to-small-businesses/.
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the best means to assist small business economic growth and job creation is to focus on small
business tax reduction, reform of financial credit market regulation, and federal fiscal restraint.131
Legislative Activity During the 112th Congress
Congress did not approve any changes to the 504/CDC program during the 112th Congress.
However, legislation was introduced during the 112th Congress to change the program, including
several proposals to extend the now-expired two-year temporary expansion of the eligibility of
504/CDC refinancing projects not involving expansions.
Proponents of extending the 504/CDC refinancing expansion provision, initially enacted as part
of P.L. 111-240, the Small Business Jobs Act of 2010, argued that it would create jobs by enabling
small business owners to lower their monthly payments “at no cost to taxpayers” and “is one of
many things that we should be doing to put more capital in the hands of America’s job
creators.”132
Opponents worried that the provision may require funding to cover loan losses in the future,
arguing that “commercial refinancing may pose an undue risk … at a time of significant
budgetary constraints.”133 Others opposed the expansion of 504/CDC refinancing on economic or
ideological grounds, arguing that federal fiscal restraint, business tax reduction, and business
regulatory relief would provide greater assistance to small businesses than expanding an existing
SBA spending program.
H.R. 2950, the Small Business Administration 504 Loan Refinancing Extension Act of 2011, was
introduced on September 15, 2011, and referred to the House Committee on Small Business. The
bill would have allowed 504/CDC loans to be used to refinance projects not involving expansions
as long as the financing did not exceed 90% of the value of the collateral for the financing for an
additional year beyond the two years from the date of enactment that was authorized by the Small
Business Jobs Act of 2010.
S.Amdt. 1833, the INVEST in America Act of 2012—an amendment in the nature of a substitute
for H.R. 3606, the Jumpstart Our Business Startups Act—was introduced on March 15, 2012. It
would have allowed 504/CDC loans to be used to refinance projects not involving expansions for
an additional year beyond the two years from the date of enactment authorized by the Small
Business Jobs Act of 2010.134 The amendment was ruled nongermane by the chair on March 21,

131 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/.
132 Sen. Mary Landrieu, “Statements on Introduced Bills and Joint Resolutions: S. 289, Commercial Real Estate and
Economic Development Act of 2013,” remarks in the Senate, Congressional Record, vol. 159, part 22 (February 12,
2013), p. S661. Note: the SBA approved 307 loans amounting to $257.7 million in 504/CDC refinancing under the
temporary expansion in FY2011, and 2,424 loans amounting to $2.28 billion in 504/CDC refinancing under the
temporary expansion in FY2012. As of March 14, 2013, one loan issued under this provision, in the amount of
$869,000, had been purchased (was in default) and, as of that date, was in liquidation.
133 Barry Pineless, Chief Counsel, House Committee on Small Business, “Letter to Members, House Committee on
Small Business, Full Committee Hearing on The Budget Outlook for the Small Business Administration,” April 18,
2013, pp. 12, 13.
134 Sen. Harry Reid, “Consideration of H.R. 3606, the Jumpstart our Business Startups Act,” Text of Amendments,
Congressional Record, vol. 158, part 43 (March 15, 2012), p. S1754.
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2012, and was not included in the final version of the bill that was approved by the Senate the
following day.135
S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, was
introduced on September 19, 2012, and referred to the Senate Committee on Small Business and
Entrepreneurship and the Senate Committee on Finance. It would have allowed 504/CDC loans to
be used to refinance projects not involving expansions for an additional year and a half beyond
the two years from the date of enactment authorized by the Small Business Jobs Act of 2010.
S. 1828, a bill to increase small business lending, and for other purposes, was introduced on
November 8, 2011, and referred to the Senate Committee on Small Business and
Entrepreneurship. The bill would have reinstated for a year following the date of its enactment the
fee subsidies for the 504/CDC and 7(a) loan guaranty programs and the 90% loan guaranty
percentage for the 7(a) program that were originally funded by ARRA.
Legislative Activity During the 113th Congress
Two bills were introduced during the 113th Congress to reinstate the temporary two-year
expansion of projects eligible for 504/CDC program refinancing of existing debt, which expired
on September 27, 2012. H.R. 1240, the Commercial Real Estate and Economic Development
(CREED) Act of 2013, would have reinstated the temporary expansion of the projects eligible for
504/CDC program refinancing of existing debt for five years following the bill’s enactment. It
was referred to the House Committee on Small Business on March 18, 2013. Its companion bill in
the Senate (S. 289) was referred to the Senate Committee on Small Business and
Entrepreneurship on February 12, 2013, and was ordered to be reported favorably, with an
amendment, on June 17, 2013. As amended, S. 289 would have reinstated the temporary
expansion of the projects eligible for 504/CDC program refinancing of existing debt during any
fiscal year in which the 504/CDC program is operating at zero subsidy.136
In addition, H.R. 4652, the Increasing Small Business Lending Act, would have authorized fee
waivers for the 7(a) and 504/CDC programs.
Legislative Activity During the 114th Congress
As mentioned, 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 program in any
fiscal year in which the refinancing program and the 504/CDC program as a whole do not have
credit subsidy costs. The act requires each CDC to limit its refinancing so that, during any fiscal
year, the new refinancings do not exceed 50% of the dollars it loaned under the 504/CDC
program during the previous fiscal year. This limitation may be waived if the SBA determines

135 H.R. 3606, the Jumpstart Our Business Startups Act, was passed by the House on March 8, 2012. The bill did not
contain a provision concerning 504/CDC refinancing. President Obama signed the bill, as amended, into law on April
5, 2012 (P.L. 112-106, the Jumpstart Our Business Startups).
136 The Obama Administration recommended in its FY2014 and FY2015 congressional budget justification documents
that the 504/CDC expansion of refinancing provision be extended for a year. See SBA, FY2014 Congressional Budget
Justification and FY2012 Annual Performance Report
, p. 37; and SBA, FY2015 Congressional Budget Justification
and FY2013 Annual Performance Report
, pp. 5, 37.
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that the refinance loan is needed for good cause. An interim final rule implementing the new
refinancing program was issued by the SBA on May 25, 2016, effective June 24, 2016.137
The act also eliminated an alternative job retention goal provision that allowed borrowers that do
not meet the 504/CDC program’s job creation and retention goals to participate in the expanded
refinancing program, but limited that participation to “not more than the product obtained by
multiplying the number of employees of the borrower by $65,000.”138
As mentioned, P.L. 116-260, 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. For example, the act repealed the requirement that the expansion of the types
of projects eligible for refinancing could take place only during a fiscal year in which the
refinancing program and the 504/CDC program as a whole do not have credit subsidy costs.
Among other changes, the act also increased the CDC refinancing limit from 50% of the dollars it
loaned under the 504/CDC program during the previous fiscal year to 100%, and allows
borrowers to use refinancing solely for the payment of businesses expenses.
Legislative Activity During the 115th Congress
As mentioned, P.L. 115-371, the Small Business Access to Capital and Efficiency (ACE) Act,
increased the threshold amount 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 the estimated value of the project property is greater than the federal
banking regulator appraisal threshold, which was recently increased from $250,000 to $500,000).
The act also increased the threshold amount for determining when a CDC may be required to
secure an independent real estate appraisal for a 504/CDC loan (from if the estimated value of the
project property is equal to or less than $250,000 and such appraisal is necessary for appropriate
evaluation of creditworthiness to if the estimated value of the project property is equal to or less
than the federal banking regulator appraisal threshold and such appraisal is necessary for
appropriate evaluation of creditworthiness). The change was designed to “remove the uncertainty
lenders now have juggling two different real estate appraisal thresholds.”139
In addition, S. 347, the Investing in America’s Small Manufacturers Act, among other provisions,
would have allowed CDCs to provide up to 50% of project costs instead of up to 40% if the
borrower is a small manufacturer and the 504/CDC loan guarantee program’s subsidy cost for
that current fiscal year is not above zero.

137 SBA, “Debt Refinancing in 504 Loan Program,” 81 Federal Register 33123-33126, May 25, 2016.
138 P.L. 111-240, §1122. Low-Interest Refinancing Under the Local Development Business Loan Program.
139 U.S. Congress, House Committee on Small Business, Small Business Access to Capital and Efficiency Act, report to
accompany H.R. 6348, 115th Cong., 2nd sess., September 12, 2018, H.Rept. 115-941 (Washington: GPO, 2018), p. 6
(hereinafter U.S. Congress, House Committee on Small Business, Small Business Access to Capital and Efficiency Act).
“In 1994, federal banking regulators, including the Federal Reserve, the Office of the Comptroller of the Currency, and
the Federal Deposit Insurance Corporation, set the appraisal threshold at $250,000… After more than two decades,
federal banking regulators decided to update and modernize the real estate appraisal threshold from $250,000 to
$500,000. Due to the 504/CDC Loan Program threshold value being codified in statute, H.R. 6348 was introduced to
modernize SBA’s real estate appraisal threshold.” See U.S. Congress, House Committee on Small Business, Small
Business Access to Capital and Efficiency Act
, p. 3.
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Legislative Activity During the 116th Congress
P.L. 116-6, the Consolidated Appropriations Act, 2019, authorized the SBA to issue up to $7.5
billion in 504/CDC debentures and $7.5 billion in 504/CDC refinancing in FY2019.
Following the enactment of two continuing appropriations acts, P.L. 116-93, the Consolidated
Appropriations Act, 2020, provided the SBA $988.463 million in appropriations for FY2020.140
The act also authorized the SBA to issue up to $7.5 billion in 504/CDC debentures and $7.5
billion in 504/CDC refinancing in FY2020.141
Following the enactment of five continuing appropriations acts, P.L. 116-260, the Consolidated
Appropriations Act, 2021, provided the SBA $921.733 million.142 The act also authorized the
SBA to issue up to $7.5 billion in 504/CDC debentures and $7.5 billion in 504/CDC refinancing
in FY2021.
In addition, after considering several bills and proposals to assist small businesses adversely
affected by the COVID-19 pandemic, Congress appropriated an additional $1.086 trillion to the
SBA ($20 million in P.L. 116-123, the Coronavirus Preparedness and Response Supplemental
Appropriations Act, 2020; $377.527 billion in P.L. 116-136, the Coronavirus Aid, Relief, and
Economic Security Act [CARES Act]; $383.435 billion in P.L. 116-139, the Paycheck Protection
Program and Health Care Enhancement Act; and $324.975 billion in 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).
As mentioned
 P.L. 116-136, 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.
 P.L. 116-260, 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. 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 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,

140 See P.L. 116-59, the Continuing Appropriations Act, 2020, and P.L. 116-69, the Further Continuing Appropriations
Act, 2020.
141 P.L. 116-123, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, provided the
SBA an additional $20 million for disaster loan administrative expenses related to the coronavirus impact on small
businesses.
142 See P.L. 116-159, the Continuing Appropriations Act, 2021 and Other Extensions Act; P.L. 116-215, the Further
Continuing Appropriations Act, 2021, and Other Extensions Act; P.L. 116-225, the Further Additional Continuing
Appropriations Act, 2021; P.L. 116-226, the Extension of Continuing Appropriations Act, 2021; and P.L. 116-246, the
Further Extension of Continuing Appropriations Act, 2021.
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2023, to establish a 504/CDC Express Loan program to expedite the approval of
504/CDC loans that do not exceed $500,000.
Concluding Observations
The small business relief legislation enacted during the 116th Congress included several
provisions that were 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 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.
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.
Among the lessons learned from the 111th Congress are the potential benefits that can be derived
from providing additional funding for the SBA’s Office of Inspector General (OIG) and the
Government Accountability Office (GAO). GAO and the SBA’s OIG 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 administrative problems
should arise, and, through investigations and audits, serve as a deterrent to fraud.
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,
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
website could enhance both congressional oversight and public confidence in the SBA’s efforts to
assist small businesses.

Author Information

Robert Jay Dilger

Senior Specialist in American National Government

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Congressional Research Service
R41184 · VERSION 90 · UPDATED
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