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Let SBA help

The 504 loan program offers funds for small companies' expansion

A 504 loan allows seafood operations to grow or retain
    their workforce.
By Joanne Friedrick
March 01, 2010

For one-third of the cost of his lease, John Murray is now the owner of a 24,175-square-foot waterfront building that houses M&B Sea Products, a scallop-harvesting and processing operation in New Bedford, Mass.

Murray, president and owner of the company, was able to secure in October a 20-year, fixed rate below 4 percent through a Small Business Administration 504 loan. The deal puts cash back into his business and even helps augment his workforce of 27.

That's the idea behind the 504 loan program, explains Merril Ferber, director of 
communications and out-reach for The National 
Association of Development Companies (NADCO), the trade organization for Certified Development Companies (CDCs) that provides financing to small businesses through the Development Company Economic Development Loan Program, or 504 program. There are 260 CDCs that cover all 50 states and Puerto Rico.

Small businesses looking to buy, construct or expand a building or buy major equipment, including fishing vessels or other commercial boats, are candidates for the 504 loan.

There are other criteria, ranging from being a for-profit business to occupancy requirements for the building. Net worth of the borrowing company can't exceed $8.5 million, and net profit after taxes can't exceed $3 million per year for the past two years.

However, says Ferber, a big part of the approval process is linked to job creation 
or retention.

One job must be created or saved for every $65,000 of the loan. "The hope is it's an expansion," she says, "but it also covers 

The program has existed in some form or another for 28 years. It began as the 503 program and evolved into the 504 program in the mid-90s.

Since 1997, when record-keeping of this kind began, 75 loans nationwide have been specifically tied to seafood-related businesses, although that doesn't include businesses such as retail stores or restaurants that may have a seafood component, says Ferber.

Murray looked at traditional bank financing and some state programs for capital to buy the building, "but nobody came close to [the 504] in terms of rates."

Not only were the rates favorable, says Murray, but the borrower fees were eliminated as a benefit of the 
government's 2009 economic-stimulus package.

This added perk was in place for a year and ended last month, although at press time there was legislation in the works to expand that fee waiver through October. These fees can range from around 0.1 to 0.4 percent of the total loan.

The loans are especially appealing to small businesses, says Ferber, because the borrower is responsible for a small, initial investment.

Fifty percent of the loan is financed as a first mortgage by a traditional bank, 
non-banking institution or government agency; 40 
percent as a second mortgage by the SBA 504/CDC; and the remaining 10 percent as a down payment by the borrower.

Murray worked with Mike Topalian, loan specialist and manager at Bay Colony Development Corp., a CDC in Waltham, Mass., which handles 504 loans for several New England states.

Topalian provides 504 loans to about three or four seafood-related businesses each year. At the same time M&B Sea Products was securing its $1.5 million loan, Topalian was also working with The Atlantic Red Crab Co., another New Bedford seafood company.

In that instance, the 
company was able to buy in October an 11,575-square-foot industrial condo for $830,000. With the purchase of the new facility,

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