Q: Hi Richard. Thanks for your eBulletin updating us on SOP 50 10 5 (K). I always appreciate your keeping 504 lenders in the loop. In this latest eBulletin you mentioned changes to provisions in the Energy Pubic Policy goal, changing the threshold from 10% to 15%. My question: What changed? 10% to 15% of what?

A: Quick Answer. This change refers to the “Green Loan” threshold for new construction or equipment upgrades. To qualify for Green Loans, applicants must demonstrate that their projects will generate energy from “renewable energy sources.” Think solar power, biodiesel, ethanol. Previously a project had to produce 10% of its energy from renewable sources. The new SOP ups the ante: Projects now need to generate 15% of their energy from renewable sources.

Longer Answer: About Green Loans. One of the best kept secrets about the 504 Program is the provision for projects meeting the Energy Public Policy goal. We often come across SBA lenders telling us that a financial institution turned down a loan because the applicant or an affiliate already had an SBA loan with the max guaranty. These lenders are surprised to learn that a 504 loan could have given that borrower up to $5.5 million additional SBA funding regardless of any previous SBA 7(a) funding if the project meets the Energy Public Policy Goal: “A Green 504 Loan.”

In our experience, most SBA lenders don’t know this. Everybody is “Thinking Green” these days. So Green Loans are a great marketing opportunity for CDCs.

As to qualifying for a Green 504, the new 15% threshold only applies to new projects. There’s no change to the 10% threshold for projects that simply replace existing facilities. Applicants just need to demonstrate that the new project will result in a savings of 10% in energy costs over the old project. The new project doesn’t have to be at the same street address as the old building, as long as it is in the same local area. (ZIP Code, City, SMSA)

We won’t know if the 15% threshold is a sea change until we see a number of projects using it. But hey, it’s March. Spring is here. The trees are turning green. Green loans are getting greener. Time to market SBA’s “Green Loans!”

I appreciate your questions. Keep ’em coming!

Richard Jeffrey
Associate, CDC/504 Programs