Financing an Expansion
Most of the programs covered in the start-up / small company section are also applicable to companies seeking to expand their business. Many of the programs offer small loans but do not exclude businesses seeking to expand from applying. Depending on the amount of financing you need and type of work your expansion will entail, some of these programs may be of assistance to you.
Specialized Expansion Programs
In addition to those programs, there are programs specially designed for businesses seeking expansion opportunities. The following section details these unique opportunities.
504 Certified Development Company Program
While the SBA is generally a vehicle for investment in disadvantaged businesses and for start-up ventures, mature businesses with proven cash flow and well-capitalized start-up businesses are more often the recipients of the 504 loan program. The 504 Certified Development Company Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company (CDC) is a non-profit corporation established to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. The 504 Certified Development Company is a channel that allows private funds, guaranteed by SBA, to flow into community businesses.
Typically, a 504 project includes a loan secured with a senior lien in favor of a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (a 100 percent, SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The maximum SBA debenture generally is $1,000,000 (up to $1.3 million in some cases). The program is designed to enable small businesses to create and retain jobs. The CDC generally must create one job for every $35,000 provided by the SBA on each loan. There are some exceptions available for certain projects that meet specific public policy goals.
Proceeds from 504 loans must be used for fixed-asset projects. Applicable projects include purchasing or improving land; constructing new facilities; modernizing, converting, or renovating existing facilities; or purchasing long-term machinery and equipment. The 504 program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
Interest rates on 504 loans are pegged to an increment above the current market rate of intermediate term US Treasury issues. Maturities of ten and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan. Generally, the project assets being financed are used as collateral. Personal guarantees of the principal owners are also required. Under the 504 program, the business qualifies as small if it does not have a tangible net worth in excess of $6 million and does not have an average net income in excess of $2 million after taxes for each of the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate. In addition to SBA lending, some regional CDCs may have their own microloan and revolving loan programs. You may obtain a current list of Certified Development Companies by accessing www.sba.gov and selecting the "Local SBA Resources" icon or calling (800) 827-5722.
Certified Development Corporations (CDCs)
Asheville-Buncombe County Development Corporation
Centralina Development Corporation
Charlotte Certified Development Corporation
Neuse River Development Authority, Inc.
Northwest Piedmont Development Corporation
Region E Development Corporation
Smoky Mountain Development Corp.
Wilmington Industrial Development Incorporated
The Export Working Capital Program
The Export Working Capital (EWCP) Program was developed in response to the Guarantee Facilities also can be used to extend medium-term credit to buys of US capital goods and services through banks in certain foreign markets.
Direct Loan Program
The program provides competitive, fixed-interest-rate financing for export sales of US capital equipment and related services (usually in excess of $10 million).
The North Carolina Small Business and Technology Development Center became the North Carolina City/State Partner for Ex-Im Bank in 1996. As the City/State Partner, the SBTDC markets the bank's services to small and medium-sized companies that are ready to export. It also markets Ex-Im's programs to commercial banks, teaches seminars, counsels exporters and banks, and may package working capital transactions.
US Export-Import Bank
This is the largest financing tool, measured by dollar amount per project, available to the North Carolina Department of Commerce. IRBs are a source of long-term, low-interest financing that can be used only by a company engaged in some manner of manufacturing. The proceeds may be used only for fixed assets, land, building, new equipment, existing equipment (in place and installed as part of an integrated production line), architects and engineers fees, and issuance costs. Counties make IRB financing available for qualifying projects. Such projects include new or expanding manufacturing facilities, distribution centers, and research and development facilities necessary to the manufacturing process. The state supervises and approves bond applications, but the bond authority in the county in which the plant is located issues the bonds. The rules governing bond issuance are a combination of federal regulations and North Carolina statutes. Interest rates are negotiated between the firm's agent and the bond buyer.
The company must agree to pay its employees a wage greater than or equal to 10 percent above the average weekly manufacturing wage of the county or state. However, certain high-unemployment counties may waive this wage requirement. It normally takes eight to ten weeks for an application to be approved. Although there is no set minimum, a bond issues generally needs to be for about $1.5 million to be cost effective. Bonds can be taxable or tax exempt. The maximum tax-exempt bond amount is $10 million in any given jurisdiction. Taxable bonds are not subject to this limit. Approximately $89 million of the state's bond allowance of $382 million was approved through mid-2000.
NC Department of Commerce's Commerce Finance Center