First-Ever National Study of SBA 504 Loan Program Reveals Positive Impact on Economy

MCLEAN, Va., April 4, 2008 /PRNewswire/ -- Amid bad news about the economy in general and business in particular, the National Association of Development Companies (NADCO) offers a spark of optimism for America's small businesses and policymakers. A recent study (http://504impact.com/Economic-impact-study.php) conducted on behalf of the trade association has revealed that the Small Business Administration's 504 Loan Program (http://504impact.com/504-Program-Overview.php) is a proven, cost-effective way of generating new business activity and job growth for the national economy.

"This study is the first formal assessment of the SBA 504 program's economic impact at the national level," said Chris Crawford, CEO and president of NADCO. "In addition to significant business generation, we found a corresponding increase in federal, state, and local tax revenues that was many times greater than the funding required to administer the program."

The SBA 504 Loan Program supports small business expansion and job creation via long-term, low cost, fixed interest rate business loans to buy, build, or renovate land, facilities or heavy equipment. Nearly 275 certified development companies (CDCs) deliver the program throughout the nation, offering loans with a typical minimum of 10 percent down payment, maturities of 10-20 years, and favorable, fixed rates. The result of these advantageous terms is that small businesses that might not have been able to afford regular bank loans obtain access to funds for expansion and improvement which helps to create and retain jobs and stimulate the economy.

The study was designed to measure the economic impact of the 504 program and provide a benchmark overview of how the program's outcomes extend beyond the direct activities of loan recipients. The economic analysis and development consulting firm Applied Development Economics conducted the study on behalf of NADCO, in association with the Program for Applied Research at California State University in Chico, Calif. The firm conducted a survey of CDCs and evaluated the economic impact of 831 loans issued between January 2003 and February 2005.

The study was conducted in three phases: a business survey, an analysis of economic multiplier effects of net business expansions occurring within two years of the loans and a program assessment. In addition to impacts on the private sector, the study calculated the federal, state and local tax revenues resulting from participants' net growth, plus the return on investment from the federal government's expenditures on the program.

    Key findings were as follows:
    -- The total increased business activity and employment generated an
       increase in federal taxes and other revenue that represented a
       23 percent return for every dollar of loan funds in the program or
       $37.50 for every $1.00 spent on program direct administrative costs.
       State and local taxes and revenues increased the return on investment
       to about $94.00 per dollar of program cost.
    -- 77 percent of the businesses reported increasing revenues within two
       years of receiving their 504 loans. For the average firm, revenue grew
       from $3.2 million to $4.8 million.
    -- About 62 percent of the businesses reported job growth during the same
       time period. The average business grew its workforce from 24 to 28
       jobs. Three-quarters of the businesses also reported increasing
       payroll.
    -- When the survey results were extrapolated to the more than 15,000
       businesses who received 504 loans during the two-year study period, the
       program supported the net growth of 54,000 jobs and about $4.6 billion
       in added labor income. In addition, the businesses' combined revenues
       increased by about $24.4 billion.
    -- Economic multiplier effects from the increase in direct economic
       activity added another 66,000 jobs and $4.5 billion in wages and
       salaries. Total business revenues grew by an additional $23.6 billion.

"Now that we have a more quantitative and systematic approach to documenting the economic impacts created by the SBA 504 Program, we can use this analytical framework to monitor program performance not only nationally but also at a regional level," said Crawford. "We'll be able to identify trends so that adjustments can be made in order to support both national and local economies. In fact, NADCO is offering CDCs and regional policymakers a local impact model derived from the study's calculations and analyses. This will enable our members to measure the overall impact of their financing projects on their community's economy."

The model program allows users to evaluate individual business loan proposals or a portfolio of loans initiated by a single CDC. It runs in Microsoft Excel and comes with a user manual.

About National Association of Development Companies

Created in 1981, the National Association of Development Companies is the trade association for America's Certified Development Companies (CDCs). CDCs are community-based economic development organizations that serve their local service areas and promote small business expansion and job creation through the U.S. Small Business Administration's 504 Loan Program, as well as other economic development programs.

Based in the suburbs of Washington, D.C., NADCO provides legislative and regulatory support for the 504 Loan Program on behalf of CDCs, the program's lending partners (including first mortgage lenders, attorneys and others allied to the industry), and 504 small business borrowers. For more information, please call (703) 748-2575 or visit http://504impact.com/index.php.