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Stimulus Bill Carries Important Proposed Changes to the 504 Program

Feb 2009

Amid tightened credit by commercial lenders and a downturn in the economy, small business lending has all but dried up for entrepreneurs. Small business owners still have access to affordable credit through the Small Business Administration's (SBA) 504 and 7(a) loan programs, but even these programs have seen a recent decline in loans.

A boost is much needed for these important financing programs and that very well may come as part of the massive stimulus plan being debated in Congress now.

The National Association of Development Companies (NADCO), of which FFCFC is a member, has been pivotal in the creation of and lobbying for key changes to the 504 loan program. FFCFC supports NADCO's efforts and encourages all lenders to contact their Congressmen in favor of the proposed changes.

Following is a summary of the proposed changes in both the House and Senate bills:

The House recently passed H.R. 1, which includes several key program changes:

• 504 loans could be used to finance a limited amount of existing business fixed asset debt as part of a qualified expansion project. This could be up to 50% of the project.
• The 504 loan job creation ratio would change from one job per $50,000 to one job per $65,000.
• Creates a guarantee program for up to $3 billion in 504 first mortgages to provide liquidity to the first mortgage secondary market. It is anticipated this change will be limited to existing loans.
• Earmarks $426 million to support liquidity via either purchases or guarantees for the 7(a) program. It also proposes a program of refinancing of small business loans (SBA or otherwise qualified for either program) that could be done by lenders or as a direct loan program administered by the SBA.

The Senate is currently debating S. 336, its stimulus bill, which is very different from the House bill. Key provisions in the Senate version include:

• $100 million to offset both the first mortgage fee (0.5% upfront), and the certified development company (CDC) processing fee (1.5% upfront) to reduce borrower costs until Sept. 30, 2010.
• A permanent increase in the maximum 504 loan amounts:
• Typical project would increase from $1.5 million to $3 million.
• Public policy projects would increase from $2 million to $3.5 million.
• Manufacturing projects would increase from $4 million to $5.5 million.
• 504 loans could be used to finance a limited amount of existing business fixed asset debt as part of a qualified expansion project. This could be up to 50% of the project.

The Senate bill, FYI, also contains several non-504 appropriations, including:

• $515 million for fee offset for the 7(a) program.
• $6 million for direct loan programs.
• $24 million for SBA micro loans.

Senate leadership has indicated that the debate on S. 336 may be long and difficult, even with President Barack Obama wading into the discussions. The president is pressing to have a completed bill, conferenced and passed by Congress by mid February.

With 504 volume down by 40% this year, these changes will help stop the slide and get the program growing again as it has done in every recession since the mid-1980s. So while the aforementioned legislation is in the works, it will not be known exactly what will be in the stimulus bill for the 504 program until the conference process is completed and the final bill is signed into law.

For more information on Florida First Capital and its 504 loan program, visit www.ffcfc.com, email us at insider@ffcfc.com or call 888.320.5504.

Editor's note: excerpted from NADCO's Certified News, February 2009 issue.