August 1, 2018
By Dominic J Bartolone
Contributing Editor, C-Suite Wednesday
C-Suite Wednesday — SBA Gets Serious about Rural Lending
On July 19, SBA announced its new 504 Loan Program Initiative Pilot Program. The program is aimed at assisting small businesses in rural communities through increased access to capital.
The 504 Rural Pilot waives the restrictions on the authority of CDCs to make 504 loans outside of their Area of Operations.
The waiver allows each CDC to make loans for 504 Projects with an address located in a rural county outside their area, provided the 504 Project is located in the same SBA Region in which the CDC is incorporated.
The SBA contends that this rule will increase opportunities for small businesses located in rural areas while helping to achieve the 504 Loan Program public policy goal of providing easier access to financing for expand rural development.
Under 13 CFR 120.821, a CDC is required to operate only with its approved Area of Operations that is authorized by the SBA. Each approved Area of Operations includes the entire state in which it is incorporated. Although a CDC may apply to expand its Area of Operation into a Local Economic Area, or by becoming a multi-state CDC.
To solve this issue and increase lending in rural areas, the 504 Rural Pilot allows CDCs to make loans on 504 Projects outside of its Area of Operation if it is located in any county classified “rural” by the U.S. Census Bureau.
However, the waiver does require that the 504 Project be located in the same SBA Region where the CDC operates.
The rule requires a county to be “mostly rural” or “completely rural” as classified by the decennial census report. A spreadsheet list of rural counties can be found here.
Specifically, under the 504 Rural Pilot, the SBA is waiving the following requirements:
- The CDC must apply to Sacramento Loan Processing Center in order to make the 504 loan for a 504 Project outside of its Area of Operation;
- The CDC must demonstrate that it can adequately fulfill its 504 program responsibilities for the 504 loan;
- SBA must determine that the CDC has satisfactory SBA performance;
- the CDC must have previously assisted the business to obtain a 504 loan, the existing CDC or CDCs serving the are agree to permit the outside DCD to make the 504 loan, or there is no CDC within the Area of Operations in which the 504 Project is located.
CDCs must still follow all other 504 Loan Program Requirements and are expected to fulfill all program responsibilities. However, they will not be required “to demonstrate” that they can fulfill their loan program responsibilities for each 504 Rural Pilot loan before making the loan.
The 504 Rural Pilot waiver of restrictions in 13 CFR 120.839 on CDCs’ authority to make loans outside their Area of Operations, will be available from July 19,2018 through July 20, 2020.