Ask the Experts

Q- Can a 504 loan exceed $1.5MM? If so, what makes a loan eligible for a higher loan amount, and what other advantages accrue to these projects?

A- Yes, in special circumstances a 504 loan can exceed the typical maximum loan size of $1.5MM. To do so, the loan must qualify under a Public Policy objective as set forth by the SBA.

Only projects that meet one or more Public Policy Goals can have a debenture (SBA loan) size that exceeds $1.5MM and can be as large as $4 million. If a project meets a public policy objective, the company is typically eligible for a loan as large as $2.0MM, but a manufacturing company with an SIC code of 20-49 could qualify for a loan size as large as $4.0MM. In addition, because the purpose of the SBA 504 loan program is economic development, a company that meets a public policy objective is automatically eligible for financial consideration of their loan request and does not necessarily have to meet job creation/retention requirements.

There are nine (9) public policy goals. They are:

(1) Business District Revitalization: A project located within a business area of a community with a recognized revitalization or redevelopment plan that encourages business development as a means of enhancing the economic productivity of the area. There should be a recognized incentive given by the community for the business to locate in the particular geographical area, such as lower taxes.

Example: Enterprise Zones

(2) Expansion of Exports: A project in an eligible small business will create, retain or expand its ability to produce or sell its goods or services for purchase by buyers outside of the United States. To qualify, at least 10 percent of the small business's revenue must be from export sales at the time of the project, or will be 10 percent of the SBC's revenue as a result of the project.

(3) Expansion of Minority Business Development: The small business concern (operating company and not eligible passive company) must be at least 51 percent unconditionally owned and controlled by an individual(s) who is a member of a group identified in 124.105(b) which lists the eligible designated groups. Resident aliens are not eligible under this category.

(4) Rural Development: A project located in any city or unincorporated area in a non-metropolitan county or any city or unincorporated area in a metropolitan county with a resident population of less than 20,000.

Note: This census figure is based on the 2000 U.S. census. For any questions regarding the designation of a metropolitan county versus non-metropolitan county, please contact your local FFCFC representative.

(5) Enhanced Economic Competition: A project which increases a small business's competitiveness through advancement of technology, plant retooling (expansion or modernization of manufacturing facilities), or conversion to robotics.

Note: This objective primarily deals with manufacturing companies with a Standard Industrial Classification Manual (SIC) Code of 20-49 and companies that meet this objective are eligible for debenture loan sizes as large as $4.0MM.

 (6) Restructuring Because of Federally Mandated Standards or Policies: A project that enables the business to meet requirements to improve the environment, safety or health of employees, such as pollution control equipment, or removal/encapsulation of asbestos, or that assists a small business that provides environmental services. It is rare for a project to qualify under this objective, perhaps because it is often overlooked.

 (7) Changes Necessitated by Federal Budget Cutbacks: A project that assists a small business that is located in or is locating into an area impacted by Federal budget cutbacks, such as facility closings or cutbacks in defense-related industries. The business itself does not have to be harmed by the cutbacks, but has to be located in, or is locating into, an area that has been affected.

 (8) Expansion of Small Business Concerns Owned and Controlled by Veterans: The Veterans Act of 1999 expanded the eligibility of SBA's Certified Development Company (CDC) loan (504) program to include 504 loans to veterans and service disabled veteran businesses as one of the program's public policy goals. To qualify under this objective, the individual(s) must own and control at least 51% of the operating company (not the eligible passive company) and must have served in Active duty.

 (9) Expansion of Small Business Concerns Owned and Controlled by Women: A project that assist a small business that is majority owned and controlled by women. To qualify under this objective, the individual(s) must own and control at least 51% of the operating company (not the eligible passive company).

For any questions regarding applicability of Public Policy objectives, please contact your local FFCFC representative. A listing can be found at http://www.ffcfc.com/CMP-Bios.html

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