Agenda Packets - 1983/10/24 - Laserfiche WebLink

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SMALL BUSINESS ADMINISTRATION 503 PROGRAM For small businesses planning to construct new buildings or modernize existing facilities, the scarcity of affordable long-term financing is a major concern. Rising interest rates and the reluctance of private lenders to finance small businesses have hindered the birth and expansion of many firms, and consequently impeded urban commercial and industrial revitalization efforts. To help fill this financing "gap," Congress passed Section 503 of the Small Business Development Act of 1980. The leggislation authorizes the SBA to guarantee debentures issued by state and local development companies for long- term loans to small businesses. Development companies have been assisting small firms for more than 20 years under Sections 501 and 502 of the 1958 Small Business Investment Act. Now, after three years of operation, the 503 program has proven to be a particularly useful tool in addressing the long-term financing needs of small businesses. The SBA 503 program is based on the strategy of investing in small but profitable and growing businesses as a way to most effectively create new permanent private sector jobs. Small- and medium-sized businesses create the majority of new private sector jobs and employ over half of the work force. Moreover, a small business can create a job for a fraction of the cost of a large business. The 503 program addresses the three critical ingredients of economic development financing (long term, low down payment and reasonable price) to stimulate investment by providing incentives to both borrowers and private sector lenders. An active 503 program could help achieve a number of goals including: - Facilitate economic development in the Region. - Create jobs and business expansion. - Increase the availability of long-term financing for small- and medium- sized firms. - Equalize the ability of communities to attract commercial and industrial investment, and to offer financing to existing local firms for expansion. - Make a 503 program available to all communities, not just the larger ones. - Provide development assistance to smaller communities that do not have the resources to hire staff specialists to work with local businesses. - Provide a positive incentive implementation tool for Council policy. PROGRAM DESCRIPTION The 503 program works through certified development companies (CDCs). A CDC is a company that is incorporated to facilitate small business expansion specifically through the use of the SBA 503 program within a defined geographic area. Typically, a CDC is a nonprofit corporation. The CDC may use SBA direct loans, subordinated loans or loan guarantees. SBA then guarantees payment of all principal and interest on debentures issued by a CDC. 19