Certified Development Company (CDC)

What a CDC does

A Certified Development Company is the community-based partner behind the SBA 504 loan. It is a nonprofit corporation that the Small Business Administration has certified and regulates to package, process, close and service 504 loans. 504 loans are made through CDCs.

The CDC does three jobs that a bank on its own does not:

• It makes the SBA-backed loan. The CDC provides up to 40% of the project through an SBA-guaranteed debenture, secured by a second lien on the property.
• It packages and submits the application. The CDC collects the borrower's financials, confirms eligibility, and submits the loan to the SBA for authorization.
• It services the loan for its whole life. After closing, the CDC services its portion.

The CDC is not a bank and does not hold deposits. SBA rules for CDCs include nonprofit status and a defined area of operations.

How the 504 financing is split

A standard 504 project has three pieces of money, and the CDC's piece sits in the middle of the capital stack:

Source	Share of project	Lien position
Bank (third-party lender)	At least 50%	First lien
CDC (SBA-guaranteed debenture)	Up to 40%	Second lien
Borrower	At least 10%	Equity

Because the SBA stands behind the CDC's portion, the bank is protected by the property and by a borrower who has real equity in the deal. That structure is why a 504 can reach a combined loan-to-value near 90% while the bank lends only about half the project.

When the CDC share shrinks

The CDC's 40% is a ceiling, not a promise. The regulation reduces it when the project is riskier:

• New business (two years old or less) or a limited-market or special-purpose property: the CDC share cannot exceed 35% and the borrower's contribution rises to at least 15%.
• Both conditions at once: the CDC share cannot exceed 30% and the borrower contributes at least 20%.

The shortfall does not disappear; the borrower's equity or the bank's share absorbs it. A building designed for a single use, such as a car wash or a bowling alley, is the typical special-purpose case.

Worked example: a $2,000,000 owner-occupied purchase

A business buys a $2,000,000 building it will occupy. For illustration we assume a 6.5% CDC rate, a 7.0% bank rate, and 25-year terms on both loans. These are example values, not quotes; actual debenture rates are set when the debenture is sold and bank rates are negotiated. The numbers below come from the same math as our SBA 504 calculator.

Piece	Share	Amount	Monthly payment
Borrower down payment	10%	$200,000	—
CDC debenture (second lien)	40%	$800,000	$5,402
Bank loan (first lien)	50%	$1,000,000	$7,068
Total	100%	$2,000,000	$12,469

Over 25 years the CDC portion costs about $820,497 in interest and the bank portion about $1,120,338. The borrower brings $200,000, and the CDC's 40% is what makes that small a contribution possible.

Now the CDC's own charges on that $800,000 debenture. Using the ceiling of the processing fee, 1.5% of the net debenture proceeds comes to roughly $12,000. A servicing fee at the 0.625% regulatory floor is about $5,000 in the first year on the unpaid balance, and it declines as the balance falls. Closing costs and other third-party charges come on top. Ask your CDC for its fee schedule in writing before you sign anything.

What the CDC charges

CDC fees are set by federal rule (13 CFR 120.971), not by negotiation:

• Processing fee: up to 1.5% of the net debenture proceeds. Two-thirds is earned and collectible once the SBA issues the loan number.
• Closing fee: a reasonable amount that reimburses the CDC for in-house or outside legal counsel and miscellaneous closing costs. The portion paid from debenture proceeds is capped at $10,000.
• Servicing fee: at least 0.625% and no more than 2% per year on the unpaid balance, reset at five-year intervals. Above 1.5% in a rural area or above 1% elsewhere requires the SBA's prior written approval.

These are separate from the bank's own fees, such as an origination fee, so compare total closing cost, not one line at a time.

CDC vs. bank vs. SBA

People often blur the three parties. They are distinct:

• The SBA does not lend the money. It guarantees the debenture and sets the rules.
• The CDC originates, packages and services the second-lien debenture.
• The bank makes the first-lien loan, usually at least half the project, on its own underwriting and its own rate. It holds the senior debt.

This is also the main structural difference from an SBA 7(a) loan, where a single participating lender makes the loan and no CDC is involved.

What the 504 program finances

The program is built for major fixed assets: owner-occupied commercial real estate, new construction and improvements, and long-life equipment. It is not for working capital, inventory or speculative real estate investing. For existing buildings the borrower's business must occupy at least 51% of the property; for new construction, at least 60% at the start, rising to the full building within 10 years (a tenant may keep up to 20% permanently).

Current SBA ownership rules also apply: as of March 1, 2026, 100% of the owners must be U.S. citizens or nationals residing in the United States, and lawful permanent residents do not qualify (SBA Policy Notice 5000-876441). Borrowers must meet SBA size standards, either by industry or under the alternative test of tangible net worth no more than $20 million and average net income no more than $6.5 million.

Loan limits

The CDC debenture is capped at $5,000,000 for each borrower and its affiliates, or $5,500,000 per project for small manufacturers (NAICS 31–33, with all production facilities in the United States) and for projects that cut the borrower's energy use by at least 10% or generate renewable energy. Because the debenture is only 40% of the project, a $5,000,000 debenture supports a project near $12,500,000 in total cost, and the bank's share sits on top of that.

Finding and working with a CDC

You do not apply to the SBA directly. The usual path is to line up a bank willing to make the first-lien loan, then bring in the CDC that covers your property's location. The SBA publishes a directory of CDCs, and many banks that do 504 loans already have a CDC they work with. Because each CDC has its own staff, turnaround and fee schedule, it is reasonable to ask two or three questions up front: how many days from complete application to SBA authorization, which fees it collects at closing, and whether it can handle a refinance of an existing building if that is your goal.

The CDC also matters after closing. It services its portion for the life of the loan, so changes that touch its loan involve the CDC as well as the bank. Treat the choice as a long relationship, not a one-time transaction.

Why lenders care

For the bank, the CDC is what makes a high-leverage owner-occupied loan acceptable. The bank sits at roughly 50% of cost, so its loan-to-value stays well below what the borrower's total leverage suggests, and the SBA-guaranteed second lien stands behind the borrower's equity. Banks that lend to a 504 deal usually underwrite their piece on conventional terms, including cash-flow coverage, borrower credit and collateral, so a CDC does not replace credit standards; it replaces the bank's need to fund the top 40%.

For the borrower, the CDC portion is a long-term, fixed-rate loan, which means the largest part of the project cost has a payment that cannot rise. That is the trade the CDC offers against a bank loan whose rate floats or resets.

What to watch for

• Get the CDC's fee schedule early. Processing, closing and servicing fees are regulated ceilings, not flat prices. Ask which fees the CDC will collect, and whether any are financed into the debenture.
• Know that two lenders mean two sets of documents. The bank and the CDC both underwrite and both close. A delay at either holds the other, which is why 504 loans usually take longer than a single-lender loan.
• Check who owns the borrowing entity. Ownership eligibility is tested on every owner. Resolve it before you pay for appraisals and environmental reports.
• Expect personal guarantees. SBA lending generally requires guarantees from the principal owners, so confirm with the CDC which owners must sign before you commit. See personal guarantee.
• Shop the bank, not only the CDC. The CDC's rate is largely set by the debenture market; the bank's rate and fees are where you can compare offers.

For a plain-language walk through the whole structure, read our guide to the SBA 504 loan with 10% down. When you are ready to see what your project qualifies for, start with a short application and we can help identify bank and CDC options.

Sources: 13 CFR Part 120, Subpart H (CDC certification and operating requirements); 13 CFR § 120.883 ($10,000 closing-fee cap); 13 CFR § 120.931 (504 loan limits); 13 CFR § 120.971 (CDC fees); 13 CFR § 120.910 (borrower contribution); 13 CFR § 120.131 (occupancy); 13 CFR § 121.301 (size alternative); SBA Policy Notice 5000-876441; SBA Form 1246; Congressional Research Service, Small Business Administration 504/CDC Loan Guaranty Program (R41184). Example payments computed with the BestLoanUSA SBA 504 calculator at assumed rates.