What Is a Certified Development Company (CDC)?

People at a table discussing a certified development company.

Certified Development Companies (CDCs) are nonprofit organizations that play a critical role in the local economy, especially for small business owners. Their main aim is to provide financing and technical assistance to startups

For small business investment companies and aspiring small business owners, understanding the role of CDCs is important. Not only are these CDCs certified by the Small Business Administration (SBA), but they also work closely with their local SBA district office in partnership to offer loans tailored for small businesses.

Purpose of CDCs

CDCs were designed to energize and support the local economy to promote economic development. Originally a financial advantage for historically underutilized business zones, they help all business owners navigate the murky waters of finance. 

By working closely with participating SBA lenders and using resources like the 504 Loan Program, CDCs offer opportunities for small business borrowers to purchase real estate and other major fixed assets. 

Beyond this, they offer a hand in business training for small business applicants, ensuring a small business borrower has the necessary skills and knowledge for success.

Relationship With the SBA

A CDC’s relationship with the SBA is symbiotic. After all, both aim to support the small business owner. 

Through this partnership, the SBA offers guarantees on loans, thus reducing the risk for the participating SBA lender. 

This partnership not only provides real estate financing and new equipment loans but also injects working capital into businesses, assisting them to expand and thrive.

Services Offered by CDCs

For any small business owner, especially those just starting out, the support provided by CDCs is invaluable. This includes:

  • SBA 504 Loan Program: This program, known for its fixed-rate financing, offers long-term stability for businesses. Through this, businesses can buy heavy equipment, commercial real estate, and other resources pivotal for growth.
  • Technical Assistance: CDCs are more than just lenders. Their aim is to help the small business owner succeed. They offer guidance on business goals, from business planning to financial management.
  • Business Training and Education: In collaboration with SBA’s community-based partners, CDCs offer extensive workshops, assisting businesses in understanding the nuances of project financing, marketing, and more.

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Pros and Cons of Working with CDCs

Every coin has two sides, and working with CDCs is no different:

Benefits of CDCs

  • Access to capital: Through the SBA’s community-based partners and their internal resources, CDCs grant local businesses a chance at real estate financing, even if they have lower credit scores.
  • Technical assistance: From helping in the loan process to offering advice on business needs, CDCs are there every step of the way.
  • Business training and education: Aiding businesses to not just survive, but thrive.

Drawbacks of CDCs

  • Higher interest rates: While they offer extensive support, CDC loans might come with a steeper interest rate than other financing options.
  • Business owner contribution: Expect to invest a significant portion of your own resources when availing a CDC loan.
  • Longer processing time: Patience is key, as CDC loans might take longer to get approved than traditional bank loans.

For more loan options beyond SBA loans, visit our Best Startup Loans review.

How to Access CDC Services

Accessing the resources of a CDC isn’t a walk in the park. There are criteria to meet, especially if you’re aiming for maximum loan amounts. 

The path begins with understanding the SBA size standards. Being a for-profit business with a solid business plan is a must. You must also demonstrate repayment capabilities to ensure your business goals align with the loan’s requirements.

Tips for Entrepreneurs

Navigating the world of startup finance can be daunting. But armed with the right knowledge and a robust plan, the journey becomes easier:

  • Research CDCs in your community.
  • A strong business plan backed by solid financial statements is a must.
  • Documentation is necessary. Whether it’s to demonstrate repayment capabilities or showcase your business needs, being prepared is half the battle won.
  • Choose a CDC that resonates with your business goals and offers the right blend of technical assistance and resources.

For every small business applicant, CDCs offer a lifeline, ensuring businesses, whether new or established, get the support they need to flourish in their local economy.

FAQs

What is the primary role of a Certified Development Company?

CDCs exist primarily to assist for-profit businesses. They provide both financing and technical assistance, aiding economic development to help businesses secure loans and thrive in their respective markets.

How did CDCs start?

Before the inception of CDCs, many businesses, especially those in historically underutilized business zones, had only limited options for financing. This backdrop set the stage for the Small Business Investment Act of 1958 to introduce CDCs.

How do CDCs differ from traditional banks?

While traditional banks focus purely on lending, CDCs offer a broader range of support. From technical assistance to business training, they go beyond mere financing to help businesses grow and succeed.

What is the 504 Loan Program?

The 504 Loan Program is a long-term, fixed-rate financing solution offered by CDCs. It’s tailored for businesses looking to purchase major fixed assets such as real estate and equipment.

Are all businesses eligible for CDC services?

No, there are specific criteria that businesses must meet. This includes being a for-profit entity, adhering to the SBA’s size standards, having a feasible business plan, and demonstrating the ability to repay the loan.

Why might a loan from a CDC have a higher interest rate?

Given that CDCs often cater to businesses that traditional banks view as riskier, they might charge higher interest rates to offset this perceived risk.

What kind of training and education do CDCs offer?

CDCs offer extensive workshops, seminars, and training programs. These cover a range of topics crucial for business success, from marketing and financial management to business planning.

How can a business best prepare to work with a CDC?

Research is vital. Understanding the CDCs in your area, preparing a robust business plan, and having all the necessary documentation at hand will streamline the process and increase the chances of securing a loan or other services.