Kurt Chilcott is president and CEO of CDC Small Business
Finance, a nonprofit certified development company established in 1978. Chilcott is a nationally recognized leader in
economic and community development and small-business
finance. Under Chilcott’s leadership, CDC Small Business
Finance has led the nation in SBA 504 loan production for
nearly 20 years. It has leveraged $13.8 billion in small-business
loans since its inception. Visit www.cdcloans.com.
Reach Chilcott at firstname.lastname@example.org.
Financing Option Expands
the Window of Opportunity
The new 25-year SBA 504 loan can help you close more commercial-property deals
By Kurt Chilcott
There’s a new financing tool available to commercial mortgage brokers and their small-business clients. It’s the 25-year U.S. Small Business Administration (SBA)
504 loan, which is designed for commercial real
It’s the first major structural change to the SBA 504
program in many years. The new 25-year, fixed-rate
term loan complements the 20-year and 10-year terms
traditionally offered with SBA 504 loans.
“This 25-year option comes at a good time for
small-business owners who want to purchase a building
but have to deal with the uncertainty of rising interest
rates,” said commercial mortgage broker Martin McDermott, formerly of Avison Young and now managing
director of Method Commercial in Los Angeles. “The
longer term will make it easier for more entrepreneurs
to qualify and benefit from a lower monthly payment,
which will in turn boost their cash flow.”
Demand for the new SBA 504 loan is likely to be driven
by small businesses that are enjoying increased revenues and the perks of a strong economy, McDermott
said. They can seize the opportunity presented with
the new 25-year term SBA loan program to add new
locations, buy new equipment and hire more people.
It didn’t take long for the first 25-year loan to get
approved. Not even a week after SBA announced the
availability of the new product this past April, a major
bank partnered with a nonprofit certified development company (CDC) to approve a $3.3 million loan
for a California structural steel-fabrication company’s
purchase of a 20,000 square-foot facility, which will
serve as a fourth location for the company.
The introduction of the 25-year 504 loan turned out
to be good timing for this bank’s client. The owners
were moving toward a 20-year term, but then decided
to take advantage of the longer amortization to lower
their monthly payment.
The idea for a 25-year debenture was part of an ongoing,
large-scale effort by the National Association of Development Companies, or NADCO. It is the trade group for
CDCs and, among other efforts, it seeks to make the SBA
504 loan program more relevant for brokers, bankers
and small-business owners. Commercial real estate
lending has evolved to the point where 25-year and
even 30-year loans are no longer the exception, but
more often the rule.
The SBA 504 loan was created more than 30 years
ago as an economic development tool with the goal
of boosting job creation in the U.S. With 20- and 10-year
terms, it was designed to help small businesses buy
large machinery as well as acquire, construct and
improve major fixed assets, such as owner-occupied
commercial real estate.
Each month, 504 loans are pooled and funded
through the sale of CDC debentures that are fully
guaranteed by the SBA. Private investors looking for
fixed-income streams guaranteed by the federal government find this an attractive investment. In fiscal
year 2017, nearly $7 billion in commercial real estate
projects were financed with SBA 504 loans.
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