What are the Job Creation Requirements of the SBA 504 Loan Program?

SBA 504 Loan Requirements: Job Creation, Public Policy Goals, and Community Development

504 loans exist to help small businesses grow and expand. However, they are not available to all companies. In order to qualify, you must meet specific requirements. In general, this means that you need to create a specific number of jobs based on the amount of the loan. However, that’s not always the case. In this article, we’ll discuss what borrowers need to know about the job creation, public policy, and community development requirements for the SBA 504 loan program.

What Are the Job Creation Requirements of an SBA 504 Loan?

All SBA 504 loans have at least some requirements in terms of job creation. In some cases, borrowers can get around certain job creation mandates, but the CDC must be able to maintain their overall portfolio average. Otherwise, the borrower will need to create the specified number of jobs.

The general rule of thumb is that a borrower must be able to create at least one job for every $65,000 in funding they borrow through a 504 loan. However, small manufacturers must create or maintain a ratio of one job for every $100,000 in funding borrowed.

Of course, not all businesses are able to generate the required number of jobs. The SBA understands this, and offers a means around the requirement. As long as it does not cause the CDC you’re working with to miss its target employment numbers across the entire portfolio of businesses it assists, your business can meet public policy goals or community development goals instead of creating new jobs.

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What Are the Public Policy Goals of an SBA 504 Loan?

Public policy goals are those related to any sort of governmental public policy, such as increasing the number of minority or women-owned businesses within a specific area, or expanding the exports from your local area. The complete list of acceptable public policy goals as set forth by the SBA is as follows:

  • Revitalizing a business district of a community – note that you must have a written revitalization or redevelopment plan to qualify for this.

  • Expanding exports from your locality.

  • Expanding the number of small businesses owned and controlled by women in your locality.

  • Expanding the number of small business owned and controlled by minorities in your locality.

  • Expanding the number of small businesses owned and controlled by veterans in your locality – note there is a particular focus on service-disabled veterans here.

  • Improving development in rural areas.

  • Increasing productivity and competitiveness – note that this touches on things like robotics, modernizing production or manufacturing, increasing competition with imports, or retooling for improved efficiency and competitiveness. We will expand on this particular section of public policy goals in a separate section, as it is quite vast.

What Are the Community Development Goals of an SBA 504 Loan?

Community development is one of the core goals of the CDC with which you work, as well as the Small Business Administration. Small businesses play a key role in building new communities and in helping strong communities continue to thrive. They can also breathe new life into communities that have suffered downturns as residents and employers move out of the area.

A great example of this is the ongoing renaissance of small town centers across the US. Many small towns are undergoing revitalizations as new businesses move into and renovate old, vacant buildings in their centers. Town squares are once more becoming places for families to enjoy, restaurants and retailers are once more moving back to historic neighborhoods, and small manufacturers are making jobs more widely available in areas decimated by business emigration elsewhere.

If your business is able to help develop the local community, it can offset a lack of new job creation. The acceptable community development goals listed by the SBA are as follows:

  • Improving, diversifying or stabilizing the local economy: This can be difficult to prove, but a well-thought-out business plan can help showcase where and how your business will benefit the local economy. For instance, a new type of business not currently represented in the local economy could be considered diversification. Or, if you were able to show projections that indicate your business would be able to create an influx of new capital in the area, this would qualify as stabilizing or improving. Of course, this would depend on the amount of projected capital involved and the current economic situation in the area.

  • Stimulating other business development: Again, this one can be somewhat difficult to prove, but your business plan can showcase where you might source supplies or materials locally, as well as how your business will increase demand for services from other businesses that do not yet exist in the area, opening up yet more opportunities and fostering greater economic growth.

  • Bringing new income into the community: This is yet another area where your business plan is a critical consideration, or where showing how expanding your current operations will improve the amount of cash flow to the area. “New income” can include almost anything, as well, from tourist dollars to new business development to contracts with local suppliers for raw materials.

  • Assisting manufacturing firms and all of its production facilities located in the United States: This applies only to North American Industry Classification System (NAICS) Sectors 31 to 33, and can apply to almost any type of assistance, from improved efficiency to reduced errors in manufacturing to reduced demand for raw materials.

  • Assisting businesses in “labor surplus areas”: A designated “labor surplus area”, or LSA, according to the National Archives, is “a civil jurisdiction that has a civilian average annual unemployment rate during the previous two calendar years of 20% or more above the average annual civilian unemployment rate for all states during the same 24-month period.” In short, if you are able to help businesses employ more people within a designated LSA, you may qualify for a 504 loan. Note that a “civil jurisdiction” has several possible definitions, which can be found here.

What Are the Modernizing and Upgrading Goals of an SBA 504 Loan?

The SBA pays special attention to the section of the public policy goal list that discusses modernization (increasing productivity and competitiveness). The organization lists a number of qualifying goals that fall under the expanded heading of modernizing or upgrading facilities to meet health, safety, and environmental requirements. These include the following. Note that these requirements are taken verbatim from the SBA’s website:

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  • Assisting businesses in moving to areas affected by federal budget reductions, including base closings, either because of the loss of federal contracts or the reduction in revenues in the area due to a decreased federal presence.

Note that this is designed specifically to address downturns due to a reduced presence of influx of capital from federal organizations, agencies, or the US military. For example, should a naval shipyard close, it would affect thousands of people in the immediate area. A business able to offset that impact may qualify for a 504 loan without having to meet new job creation requirements.

  • Reduction of rates of unemployment in labor surplus areas determined by the Secretary of Labor.

Note that this specifically addresses federally-recognized LSAs, and it applies to businesses that can reduce the rates of unemployment in a range of ways, not only through direct employment within the business in question.

  • Reduction of energy consumption by at least 10%.

This falls under the heading of improved efficiency and environmental requirements, and can be achieved by businesses offering improved equipment, but also access to new sources of energy, such as solar panels or wind turbines.

  • Increased use of sustainable design, including designs that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact.

This one applies to renewable energy sources, but also innovative construction design. For instance, a company specializing in the installation of commercial solar arrays would qualify, but a design firm that specialized in creating commercial buildings to maximize the use of natural sunlight and reduce the demand for electricity from the grid may also qualify.

  • Plan equipment and process upgrades or renewable energy sources such as the small-scale production of energy for individual buildings or community consumption, commonly known as micropower, or renewable fuels producers including biodiesel and ethanol producers.

This one covers solar and wind generation, but also companies producing biodiesel and ethanol from a variety of sources. It also touches on those who design and manufacture equipment for those businesses to utilize.


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