Lending for Economic Growth

Growth of the Community and Economy

Economic development loans are flexible financial mechanisms granted by local governments for initiatives that promote economic and neighborhood development in certain jurisdictions. This form of financing helps the city revive communities, create jobs, and raise tax income. Senior loans from other public and private lending organizations are often supplemented with these funds. Economic Development Loans may also help local communities leverage federal and state investment.

These finance packages often encourage private investment in commercial and industrial sectors. In many cases, these loans are linked to job creation objectives, which aid in achieving the community’s overall economic development goals. Reinvestment improves the development of talent, skills, and living circumstances for residents, company owners, and customers.

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7A Loans 

SBA 7(a) loans have a $5 million maximum loan amount and up to 25-year payback durations. The SBA charges a guarantee fee on loans that it backs. This cost is calculated based on the loan’s maturity and guaranteed dollar amount, not the overall loan amount. The lender first pays the guarantee charge, but they might choose to pass it on to the borrower after closing. The money to repay the lender might be included in the total loan amount.

Fees for loans of less than $150,000 made after October 1, 2013, will be zero percent. The cost is 0.25 percent of the guaranteed component of any loan over $150,000 with a term of one year or less. On loans of $150,000 to $700,000, the standard cost is 3% of the SBA-guaranteed component and 3.5 percent on more than $700,000. Any guaranteed share of more than $1 million is subject to an extra 0.25 percent charge.

504 Loans

The US Small Business Administration’s 504 Loan or Certified Development Company program is meant to offer low-cost financing to acquire fixed assets, such as real estate, buildings, and equipment.

The SBA provides a variety of loan programs geared to the unique capital requirements of emerging enterprises as part of its objective to support company growth. The loan is divided among three parties under the 504 scheme. A typical lender (generally a bank) invests 50%, with the remaining 40% coming from a so-called Certified Development Company (CDC). The 504 law establishes Certified Development Companies as non-profit businesses dedicated to promoting economic development in their communities. SBA 504 Lenders in your state may be found using the National Association of Development Companies’ search tool.

The loan’s maximum value is $5 million ($5 million for accomplishing SBA-defined policy objectives and $5.5 million for manufacturers and specific energy-related policy goals). If the borrower fails, the private sector lender gets paid off first, lowering the lender’s risk and encouraging borrowing.