Commercial Magazine

Unleashing Opportunities

Recent changes to the CDC/504 loan program empower mortgage brokers and clients

By Kurt Chambliss

In the dynamic landscape of mortgage brokering, staying up to date on the newest financing options and program changes are crucial for providing the best solutions to clients. The U.S. Small Business Administration (SBA) has made recent — and significantly positive — changes to its CDC/504 loan program that warrant close attention.

“This accelerated process enables mortgage brokers to cater to clients with urgent financing needs, ensuring a competitive edge in the market.”

The changes, coupled with improved turn times for loan approvals and an attractive, long-term fixed interest rate, make the CDC/504 program a game changer for commercial mortgage brokers and borrowers. For those not familiar with the SBA system, the CDC/504 loan program provides long-term financing to small businesses for the purchase, improvement or refinance of land, buildings and equipment. These commercial mortgages are administered by certified development companies (CDCs), which are nonprofit entities that are endorsed and regulated by the SBA.

Streamlined process

Beginning in May 2023, the CDC/504 program introduced streamlined and simplified affiliate rules while improving the calculation of the program’s $5 million cap. Under these new rules, ownership-based affiliation takes precedence, allowing businesses greater flexibility in access to SBA financing. Previously, the affiliation determination was based on control and identity of interest, which was sometimes challenging to determine.

Identity of interest is when relatives outside of the immediate family unit can have their ownership of similar businesses considered as affiliates. The new guideline is based solely on ownership percentage and industry, making more businesses eligible for the program and excluding some entities that previously would have counted against an applicant’s $5 million income cap.

“Brokers can now assist business owners who were previously excluded from the CDC/504 program, helping them to secure the funding they need for growth and expansion.”

This change in the affiliate rules opens new avenues for mortgage brokers to provide financing solutions to a wider range of businesses. As trusted advisers, brokers can now assist business owners who were previously excluded from the CDC/504 program, helping them to secure the funding they need for growth and expansion. The streamlined affiliate rules not only simplify the loan process but also enhance the accessibility and inclusivity of the SBA program.

Expanded eligibility

Another significant change to the CDC/504 program is the removal of SBA review requirements for franchises and management agreements. Previously, obtaining agency approval for these arrangements added complexity and delays to the loan process. Franchises and businesses with management agreements often faced additional scrutiny, making it more challenging for them to secure SBA financing.

With the removal of the review requirements, mortgage brokers can now expedite the financing process for clients involved in franchises or management agreements. This change significantly reduces the time and administrative burden associated with the SBA review, allowing for quicker turnaround times and enhanced client satisfaction. CDCs, however, still need to collect franchise and management agreements to confirm they are in effect, since they can impact cash flow.

Mortgage brokers can leverage this change to their advantage by providing swift and efficient financing solutions to clients in the franchise industry or those with management agreements. By simplifying the loan process, brokers can help these clients to promptly seize opportunities, fueling business growth and success.

More leniency

More changes to the CDC/504 program were put in place in August 2023. They refer to the elimination of character clearances and added flexibility around personal liquidity.

Character clearances. The SBA will run a background check to determine if a borrower is currently on probation, on parole, incarcerated or under indictment. Previously, past felony convictions required applicants to pass a fingerprint check and supply past court documents.

Personal liquidity. In the past, the SBA sometimes declined projects when there was an abundance of personal liquidity. For example, if the total project cost was $1 million and the owner had $3 million in personal liquidity, the SBA might have declined the loan request with the reasoning that the borrower could obtain conventional financing. With the changes implemented in August, there will be more leniency in these situations, assuming the project meets another “no credit elsewhere” reason such as loan-to-value ratio, property type, new business, etc.

Speedy response

In an industry where time is of the essence, the CDC/504 program has made substantial strides in reducing turn times for loan approvals. Commercial mortgage brokers can now leverage the program’s efficiency, with most approvals being finalized within two to five business days, once the complete application is sent to the SBA.

This accelerated process enables mortgage brokers to cater to clients with urgent financing needs, ensuring a competitive edge in the market. With quicker loan approvals, brokers can facilitate timely transactions, seize time-sensitive opportunities and build stronger relationships with their clients. The improved turn times contribute to increased client satisfaction while positioning brokers as reliable and efficient partners in the financing process.

Additionally, the CDC/504 program offers the ALP Express loan, which provides an expedited loan process for smaller projects. Only select CDCs in good standing are designated to participate in the Accredited Lenders Program (ALP). The ALP Express program is designed for projects of up to $1.25 million, if arranged in the typical 50% first mortgage, 40% 504 loan and 10% borrower contribution structure.

With the ALP Express loan program, the SBA only reviews loan eligibility, leaving the analysis of creditworthiness to the CDC. This streamlined approach greatly speeds up the approval and closing process, allowing mortgage brokers to provide rapid financing solutions to their clients.

Despite the recent upward trend in interest rates, the CDC/504 program stands out by offering significantly lower rates than the prevailing market. This advantageous feature gives mortgage brokers a persuasive selling point. By securing a CDC/504 loan, borrowers can benefit from long-term stability and shield themselves from potential interest rate fluctuations. Mortgage brokers can capitalize on this distinct advantage by positioning the CDC/504 loan as a financially prudent choice, attracting borrowers who seek affordable and predictable financing solutions.

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With the recent changes to the CDC/504 loan program, commercial mortgage brokers should take note of the enhanced features, improved turn times for loan approvals and highly competitive interest rates. The streamlined affiliate rules, the removal of SBA review requirements for franchises and management agreements, and faster loan approvals pave the way for brokers to expand their client base through swift, reliable financing solutions. By leveraging the CDC/504 program, mortgage brokers can strengthen their position in the market, enhance client satisfaction, and unlock new opportunities for growth and success. ●


  • Kurt Chambliss

    Kurt Chambliss is executive vice president of TMC Financing, a certified development company (CDC) that has provided real estate financing in Arizona, California, Nevada and Oregon for more than 40 years. TMC Financing offers commercial real estate buyers up to 90% financing by utilizing the U.S. Small Business Administration's CDC/504 loan program. TMC is the No. 1 CDC in the nation, providing more than $14 billion in financing for more than 7,000 businesses.

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