OCC Highlights the Benefits of a Small Business Loan Program

The Office of the Comptroller of the Currency (OCC) today released a new Community Developments Insights report, "SBA 504 Loan Program: Small Businesses' Window to Wall Street," which highlights the Small Business Administration's 504 loan program and how banks may team up with certified development companies (CDCs) to make loans for long-term assets and promote economic development.

In these transactions, a bank and CDC each make a separate loan to a qualifying small business, providing financing for fixed assets such as real estate and heavy equipment. The 504 loan program enables banks to be part of a collaborative lending product that provides long-term financing to small business customers who might otherwise not be able to find the type of financing product that would allow them to preserve capital for long-term growth.

"The 504 program is an attractive option for banks," said John C. Dugan, Comptroller of the Currency. "These loans can help banks retain and attract customers, assist in risk management, and earn fee and interest income."

Under the 504 program, banks make 50 percent LTV loans to qualifying small businesses, while retaining an exclusive first lien on the collateral. The 504 loan program allows small businesses to obtain 90 percent financing for fixed assets, thereby enabling the businesses to retain needed capital for expansion.

Eligible 504 loans may also receive positive Community Reinvestment Act (CRA) consideration, as they help create economic development benefits through job creation or retention and by increasing the local tax base.

"I am pleased that Comptroller Dugan is highlighting the 504 program and the ability of banks to use this program to serve the small business community," said SBA Administrator Hector V. Barreto. "This program is custom-made for real estate and fixed asset financing, and it is experiencing unprecedented growth this year as more banks discover how well this program helps them meet the long term financing needs of their small business customers."

This Community Developments Insights report describes the benefits to banks of offering 504 loans and addresses barriers to growth of the 504 loan product. Banks interested in learning more about 504 loans can use this edition’s Resource Directory to obtain information on SBA regulations for the product and a listing of CDCs operating in their market areas.

Related Links

• Community Developments Insights