Each year the U.S. Department of Labor issues its list of Labor Surplus Areas (LSA’s). These are states, counties or municipalities with a two-year unemployment rate higher than an annually established threshold. The determination is effective October 1 of each year. If an area is on the list, it’s an LSA. If not, it’s not. The threshold for 2022-2023 was 6.0 percent or higher.
I already hear you muttering, “Why does Richard prattle on about Labor Surplus Areas? What’s that got to do with 504 loans?” And I reply, “Well, it’s just got to do with a fundamental issue of 504 lending, with the very reason Congress established the 504 program to begin with, our raison d’etre, so to speak: Economic Development.
In an LSA? If you have a project located in a Labor Surplus Area, you fulfill a Public Policy Objective. The project does not have to create or retain one job for every $90,000 of debenture or whatever the current metric is, or facilitate minority or women owned business, or be a manufacturer or exporter. None of that. If your project is in an LSA, that’s good enough.
How good is good enough? Plenty good. Applicable size standards are increased by 25% when the Applicant agrees to use all of the financial assistance within a Labor Surplus Area. So instead of a ceiling of tangible net worth of $15 million and two full years of an average net income not exceeding $5 million, the numbers increase to $18.75 million and $6.25 million respectively. Yep, we really want to lend in an LSA!
And wow! Suppose you have an applicant in an LSA that wants a Green 504? My friend, you just hit the 504 trifecta. Congratulations!
Landing a 504 loan in a Labor Surplus Area isn’t always that seamless. Check out the list: We’ll email you the latest list of Labor Surplus Areas ASAP on publication. Just send me an email!
As always, I’m anticipating lender questions. And as always, I’m happy to hear from you.