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December 12, 2018

Best Practices: Looking For a Job? Proposed Changes to Job Creation and Retention Regulations in The 504 Lending Program

by Katherine D. Tohanczyn

The Small Business Administration (“SBA”) created the Development Company Loan Program (504 Loan Program) to foster economic development and create or retain job opportunities by providing long-term financing for small businesses. To qualify for financing under the 504 Loan Program, each 504 Project must satisfy one of the economic development objectives or public policy goals set forth in sections 501(d)(1) through (3) of the Small Business Investment Act of 1958 (“SBIAct”).

Currently, under section 501(d)(1), a Project is eligible for 504 financing if it creates job opportunities within two years of completion of the Project or if it preserves jobs attributable to the Project. The general requirement is that one job opportunity be created for every $65,000.00 in project dollars that is being funded with SBA loan proceeds up to $5 million. Small manufacturers (businesses classified in sectors 31, 32, or 33 of the North American Industrial Classification System with all production facilities located in the United States) need to create one job for every $100,000 in SBA loan proceeds up to $5.5 million.

In addition, for 504 Projects in Alaska, Hawaii, State-designated enterprise zones, empowerment zones and enterprise communities, labor surplus areas (as determined by the Secretary of Labor), and for other areas designated by SBA, the CDC’s portfolio may average not more than $75,000 per job created or retained.

On November 2, 2018, the Small Business Administration (“SBA”) released changes to this creation or retention requirement as follows:

1)      A Project must create or retain one Job Opportunity per $75,000 guaranteed by SBA except that, in the case of a Project of a small manufacturer, the Project must create or retain one Job Opportunity per $120,000 guaranteed by SBA;

2)      For Projects that are eligible under 13 CFR 120.862, “Other economic development objectives,” a CDC’s portfolio must reflect an average of one Job Opportunity for every $75,000 guaranteed by SBA; and

3)    For Projects in Alaska, Hawaii, State-designated enterprise zones, empowerment zones and enterprise communities, labor surplus areas (as determined by the Secretary of Labor), and for other areas designated by SBA, the CDC’s portfolio may average not more than $85,000 per job created or retained.

Overall, these changes to the regulations increase the dollar amounts used in calculating the number of jobs that must be created or retained for each 504 Project and for the portfolio average of each Certified Development Company. In addition, SBA designated Opportunity Zones (defined as an economically distressed community that may be designated by the government for preferential tax treatment) as additional areas for application of the higher portfolio average.

For additional information concerning these changes, please contact Katherine Tohanczyn at 267.470.1187 or   ktohanczyn@starfieldsmith.com.