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January 2009
SBA 504 Program Looks to Increase Lending - New Public Policy Goals set for Energy Efficient Projects
In an effort to assist business lending amidst the current economic climate and credit market meltdown, the SBA 504 program is considering numerous initiatives that may add even further benefits for businesses utilizing this valuable economic development funding tool in Lancaster County and across the country. Currently, the SBA 504 program offers 10 and 20 year fixed rate loans in a subordinate lien position to bank financing and allows borrowers to retain valuable working capital by only requiring a minimum 10% company injection of project costs in most cases.
In mid-December 2008, the SBA 504 program announced its newest initiative to add three new public policy goals targeted towards projects implementing energy efficient goals and objectives. The new program goals allow business borrowers to access up to $2 million in loan funding per project, no more than 40% of the project costs, for the following business uses:
1. Reduction of energy consumption by at least 10%
2. Increased use of sustainable or low-impact building design to reduce non-renewable resource use and minimize environmental impact
3. Plant, equipment, and process upgrades of renewable energy sources (micropower) for individual buildings or communities or renewable fuels producers
In addition to the above public policy goals, projects that incorporate equipment or building components involving Biomass, Hydropower, Geothermal, Solar, Wind, Ocean thermal, etc. will be eligible for loan amounts of up to $4,000,000 (not to exceed 40% of project costs). EDC Finance will continue to provide updates on any new initiatives and changes to the SBA 504 program as they are announced in the future.
Interest Rate Update
Events in the credit markets impacted the SBA 504 interest rates during the November and December debenture authorizations, sending the 20 year SBA 504 debenture rate to its second highest level in the past seven years at 7.72% in November. Since that time, the 20 year SBA 504 debenture has come back to expected levels in the mid 6.00% range, with the 20 year debenture in January 2009 pricing at 6.70%. Historically, the SBA 504 20 year debenture has been a mark of consistency, especially for the past seven years. Over the past 84 monthly debentures, the 20 year debenture has priced in the 7% range twelve times and in the 5% range six times. The low rate over that time was set at 5.51% in June 2003, with a high rate of 7.85% in April 2002. The other 66 debentures priced in the 6% range. In total, the 20 year debenture has achieved a seven year average interest rate of 6.52%.
So despite all of the credit market turbulence, the SBA 504 rate in January priced only about 20 basis points above its seven year average, a true sign of consistency, especially during these difficult times.
EDC Finance SBA 504 Update
Since EDC Finance achieved designation as a Certified Development Company during the second quarter of 2008, the entity has quickly approved four SBA 504 projects locally and will consider its fifth project at the end of January. EDC Finance staff has already gained valuable experience in guiding Lancaster County companies through the SBA 504 loan process with superior customer service and timely response to client's questions.
EDC Finance is prepared to fill a significant funding role for projects that would like to consider the SBA 504 program, or any other resource offered by EDC Finance, during this difficult time in the local and national economic environment.
Please call John Biemiller or Lyle Hosler (717-397-4046) with questions about the SBA 504 program and the other resources EDC Finance has to offer to our Lancaster County business partners.
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