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The CREED ACT: Small Business' Opportunity to Aid in U.S. Economic Recovery

The CREED ACT: Small Business' Opportunity to Aid in U.S. Economic Recovery

Since early 2009, the U.S. Federal Reserve has purchased over $1 trillion in agency mortgage-backed securities (MBS)  and agency debt. While this specific stimulus, as well as other Fed actions, have been successful in thwarting a national depression and stabilizing the economy – many would argue that these  actions have been too narrowly focused, only targeting certain assets within the real estate sector:  conventional residential and multifamily assets.

Not only do these assets trade at much lower cap rates than other asset classes in the commercial real estate markets, but we have also seen recent signals (bank earnings releases, etc.) that the agency refinance wave may have already crested. Additionally, there is a growing concern that the U.S. economic and job market recovery has stalled, as evidenced by weak jobs and March spending data.

It is clear that the U.S. government should focus on legislation that stimulates jobs and helps provide liquidity to other real estate assets beyond single and multi-family assets. There is one simple government program that could provide a powerful stimulus to small businesses and small balance commercial real estate assets – the economic engine of this country – at little or no cost to taxpayers.

The Commercial Real Estate and Economic Development (CREED) Act, originally enacted as part of the Small Business Jobs Act of 2010, was operational for only eight short months last year before it expired. It allowed small business owners to use Small Business Administration (SBA) 504 loans to refinance certain existing commercial mortgages. The program is based on a proven formula: Small Business + Commercial Real Estate = Job Growth. Sen. Mary Landrieu has just introduced legislation to revive the program for another five years.

In most cases, a business must create or retain one job for every $65,000 guaranteed by the SBA; small manufacturers must create or retain one job for every $100,000 guaranteed. Borrowers must include projections for meeting these requirements  - which are not part of the bank loan process - in their applications for Certified Development Company (CDC) loans.

A 2007 economic impact study, funded by the National Association of Development Companies, the CDC trade association, reported that of the 15,000 businesses that received 504 loans during the two-year study period (2003–2005), the program supported a net growth of 54,000 jobs and $4.6 billion in added labor income. Approximately two-thirds of all 504 borrowers reported job growth within two years of receiving the loan. Businesses with job growth, not counting business start-ups, averaged nearly 12 new jobs per business and about $41,600 in 504 loan dollars per new job.

While the CREED Act may not provide all the jobs the U.S. needs to get back to full employment, it does have two substantial benefits : 1) it provides  financing options to a real estate market that is still in need of liquidity and 2) it provides zero/low subsidy assistance to a proven job creator program.

 The reintroduction of the Act provides a significant opportunity for small businesses to aid in the U.S. economic recovery. For more information about how to support the program, please visit:

Alexander Cohen is Chief Executive Officer at Liberty Small Business Funding (Liberty SBF) a commercial real estate company that specializes in SBA loans for small business owners, and  has extensive experience lending through the SBA 504 program.