The Dorchester Bay Economic Development Corp. has made the revitalization of Boston’s Dorchester neighborhoods its mission for the past 34 years. Now, the community organization has a new tool in its toolbox: The Small Business Administration’s (SBA) 504 loan program.
“Every entrepreneur brings to the table their own unique concerns and challenges, and the more products we have, the better we can respond to them directly,” said Jeanne DuBois, executive director of Dorchester Bay Economic Development Corp.
A big part of what the community development financial institution (CDFI) does today is work with startups in the area.
“Most traditional lenders do not become involved in startups. They find them quite risky, or they don’t have the time to spend with the borrower to help them become successful,” says Dan DeSantis, the director of economic development at Dorchester Bay. “We, on the other hand, have partnerships with technical advisors throughout the state. It gives the borrower some kind of support system as she or he grows.”
“We have a very diverse portfolio that is doing quite well,” DeSantis says. About 61 percent of Dorchester Bay’s portfolio consists of start-ups. Seventy percent are minority-owned businesses, and at least 30 percent are women-owned businesses, he elaborated.
DuBois said she would like to see those neighborhoods, many of them dotting the Fairmount commuter rail line, become little cultural destinations. But as businesses grow and crime drops, Dorchester Bay also wants to see long-time residents and shops stay put, not forced out by skyrocketing rents.
That’s where the 504 loan plays a role.
There are eight certified development corporations (CDC) throughout the state, and any CDC that is 504-approved can make a loan anywhere in the state, but Dorchester Bay EDC is the only such organization in the Greater Boston area and also the only 504 lender in town.
In contrast to the SBA’s better-known 7(a) loans, the 504 loan is specifically intended for long-term fixed assets up to $5 million in value, usually real estate but sometimes a piece of long-term heavy equipment, Anne Hunt, assistant district director for lender relations at the SBA’s Massachusetts district office, explained.
Most types of for-profit, small businesses are eligible for a 504 loan, as long as they meet certain SBA size standards. For instance, they must have a net worth under $15 million and have net profits under $5 million after taxes.
Three parties make the 504 loan: a bank, a community development corporation, and an SBA-approved business. The CDC packages the loan and underwrites 40 percent of it. A bank acts as a third-party lender and loans 50 percent of the purchase price. The business in question then puts down the final 10 percent.
A Win-Win-Win
The arrangement is a win-win-win situation, Hunt says. The bank puts a very low-risk asset on its books, the business gets to move into a property for less than they would pay for rent. And of course, a CDFI like Dorchester Bay gets to put another small business into its own property and invested in the neighborhood.
“Our 504 activity has been on an upward track every year. Last year, we made the most 504s ever,” Hunt said. In Massachusetts alone, that added up to about $209 million funded through economic development corporations and another $282.7 million funded through third party banks.
“We think it’s a result of commercial pricing coming down a little,” she said of the increase in volume. “We’re putting people into owner occupied properties for less than they’re paying on a monthly tenant deal. The banks like it, the applicants like it, it’s just a terrific federal program overall.”
For Dorchester Bay, having the 504 loan in their arsenal “will help small businesses buy their property,” DuBois said. That’s important in a city where small businesses largely do not own their own properties, and it’s doubly important in mitigating some of the side-effects of gentrification. That is to say, small businesses who actually own their property are much less likely to be forced out by rising rents and property values.
DuBois gave as an example the case of a local food co-op whose landlord jacked up the rent this year.
And DeSantis said he’s been working with a borrower in Roxbury whose landlord has been thinking of selling the property. Actually being able to buy that property, he said, “allows the entrepreneur to control and shape their own future. It’s very important because this is a landlord-owned town, and what we’re trying to accomplish is how to make this an entrepreneur-owned town.”
Email: alix@thewarrengroup.com
