What is  Certified Development Company (CDC)?

For small business owners looking to purchase commercial real estate, expand their operations, obtain working capital, or invest in their business, finding the right financing can be an important part of moving forward. Banks are an important source of small business financing, but they are not the only resource available.

Certified Development Companies, or CDCs, are nonprofit, community-based organizations focused on economic development and expanding access to capital for small businesses.

CDCs are perhaps best known for their role in the SBA 504 Loan Program, but their work often extends well beyond 504 lending. Many CDCs provide other forms of financing, technical assistance, business counseling, and other economic development programs designed to help small businesses start, grow, and succeed.

More Than SBA 504 Lending
A Certified Development Company is a nonprofit organization certified and regulated by the U.S. Small Business Administration (SBA). CDCs were established to promote economic development within the communities they serve.

One of their primary roles is facilitating financing through the SBA 504 Loan Program. CDCs work in partnership with banks and other third-party lenders to provide long-term financing for major fixed assets such as owner-occupied commercial real estate, construction, renovations, and long-term equipment.

But SBA 504 lending is only one way CDCs support economic development. As mission-based nonprofit organizations, CDCs reinvest a portion of the revenue they generate from SBA 504 lending back into their organizations and other economic development activities. This can include developing additional loan programs, providing technical assistance and business counseling, and supporting initiatives designed to expand access to capital within their communities.

In this way, successful 504 lending can help CDCs support an even broader range of small businesses.

Expanding Access to Capital
Many CDCs serve as broader mission-based lenders, participating in multiple loan and capital programs to help meet the financing needs of small businesses.

Depending on the CDC, these programs may include SBA 7(a) loans, SBA Microloans, revolving loan funds, and other state, federal, or locally funded lending programs.

These programs can be particularly important for businesses that may not qualify for conventional bank financing. A business may have a strong opportunity but lack sufficient collateral, have a limited operating history, need a relatively small loan, or present other characteristics that make traditional financing difficult to obtain.

Mission-based lenders can often work with these businesses to better understand their circumstances and determine whether another financing option is available.

Providing More Than Capital
Access to financing is only part of what many small businesses need to succeed. CDCs also frequently provide hands-on technical assistance and business counseling.

That support can include helping entrepreneurs develop or improve a business plan, understand their financial statements, prepare financial projections, assemble the information needed for underwriting, and better understand what lenders will look for when evaluating a loan request.

For a business owner who has never applied for a commercial loan, this assistance can be particularly valuable. Rather than simply approving or declining a loan request, a CDC can work with the business owner to identify issues, strengthen the application, and help prepare the business for financing.

The goal is not simply to make a loan. It is to help put the borrower in the best position possible to succeed after the loan is made.

How Does SBA 504 Fit In?
SBA 504 financing remains an important part of the CDC mission and is one of the primary ways CDCs work in partnership with traditional banks.

A typical SBA 504 project may include up to 50% financing from a bank or other third-party lender, up to 40% through the SBA 504 program, and as little as 10% from the borrower. Certain projects may require a higher borrower contribution.

For example, on a $1 million commercial real estate purchase, a typical structure could include a $500,000 first mortgage from a bank, $400,000 in SBA 504 financing through a CDC, and a $100,000 equity contribution from the business.

The SBA 504 portion provides long-term, fixed-rate financing, while the structure can allow a business to finance up to 90% of an eligible project and preserve capital for working capital and other business needs.

Community-Based Economic Development
What ultimately distinguishes a CDC is its mission.

CDCs are community-focused nonprofit organizations that use lending as a tool for economic development. By combining SBA 504 financing with other loan programs, technical assistance, and business counseling, CDCs can help businesses that might otherwise have difficulty accessing the capital and resources they need.

Successful businesses, in turn, create jobs, invest in their properties and communities, and contribute to the local economy. Revenue generated through lending helps CDCs continue that cycle by investing in additional programs and resources that support other businesses.

Coastal Community Capital
At Coastal Community Capital, SBA 504 lending is an important part of what we do, but it is not all that we do.

We work with banks and small businesses throughout Massachusetts to provide SBA 504 financing for commercial real estate, construction, renovations, and long-term equipment. We also provide direct loans to small businesses, including businesses that may not qualify for conventional bank financing, and provide technical assistance and mentoring to help business owners prepare for financing and strengthen their businesses.

As a nonprofit, mission-based lender, our objective is broader than simply making loans. It is to expand access to capital, support successful small businesses, and reinvest in the communities we serve.

Whether you are a small business owner looking for financing or a lender working with a business whose needs may not fit traditional bank financing, Coastal can help identify available options and determine the best path forward.