504 Loan Refinancing Program

Temporary 504 Loan Refinancing for Eligible Small Business Assets Under the Jobs Act.

Special to The Business Times from the SBA

Market research shows that a large percentage of commercial mortgages outstanding are set to mature within the next few years, particularly those held by community banks. As real estate values have declined, however, even small businesses that are performing well and making their payments on time can have a hard time refinancing these loans and may need to restructure their debt. Also, public comments and the Small Business Jobs Act tour identified that access to working capital is currently the biggest credit gap in the marketplace. This is even true for businesses with equity in their properties.

            Under the Small Business Jobs Act, the SBA has implemented a temporary program—authorized until September 27, 2012 (with a pending Congressional extension beyond that date)—allowing small businesses to refinance eligible fixed assets in its 504 program without requirement of an expansion. This program provides small businesses the opportunity to lock in long-term, stable financing, and finance eligible business expenses as well as protect jobs and hire additional workers. Key program changes were made in April 2011 and with the issuance of a final rule, effective October 12, 2011. 

Key 504 Loan Refinancing Program Features

  • SBA launched this temporary program on Feb. 17, 2011, and began accepting loan applications on February 28, 2011.  The program will end on September 27, 2012.
  • Beginning October 12, 2011 borrowers can finance up to 90 percent of the appraised value of available collateral, which could include fixed assets acceptable to SBA (for example:  commercial or residential real property).  This allows borrowers with more than 10 percent equity to be able to obtain additional proceeds to pay for eligible business expenses.
  •  In April, SBA expanded the program parameters by allowing any business with a commercial mortgage that is two or more years old to refinance its debt, regardless of maturity.
  •   The program is structured like SBA’s traditional 504 loan program: borrowers will work with third-party lending institutions and SBA-approved Certified Development Companies (CDCs), typically private, non-profit organizations to obtain financing, in a traditional 10%/50%/40% split.  However, the program no longer requires the Third Party Lender to be 50 percent of the Project.  The Third Party Lender amount must be equal to or greater than the SBA amount.  This allows the small business to maximize the amount of long-term, low interest, fixed rate financing available.
  •  SBA estimates that as many as 8,000 businesses may participate in this program during the current fiscal year, which will provide up to $7.5 billion in SBA-guaranteed financing leading to total project financing of almost $17 billion.
  •  The program, which is completely separate from SBA’s traditional 504 program, is zero-subsidy, requiring no cost to the taxpayer: It will be funded entirely through additional fees assessed for refinancing projects.