August 2020
Commercial Lending
SBA 504 Refis are Booming – Now’s the Time

With Small Business Administration (SBA) 504 loan interest rates the cheapest they’ve EVER been (currently under 2.5%), there has never been a better time than NOW for small business owners to refinance commercial mortgage and other business related debt with or without a cash-out option under the 504 Debt Refinancing Program.Now's the Time to RefiUnder the SBA 504 Debt Refinancing Program, small businesses can refinance up to 90% of the appraised value of commercial real estate property (no cash out) with repayment terms up to 25 years.  Eligible fixed assets include land, buildings, machinery and equipment that were acquired, constructed or improved by a small business for use in its business operations.

Borrowers can also refinance eligible business operating expenses (cash-out option), however a maximum 85% LTV applies and the business operating expenses portion of the project may not exceed 20% of the value of the eligible fixed asset(s) securing the qualified debt.

There are 2 important changes to the program to note regarding COVID deferments/eligibility and limited or single purpose property types.

One of the SBA’s rules for refinancing conventional debt was that the borrower could NOT have any late payments over the past 12 months; this would include a request for deferment/forbearance.  Being that COVID has forced so many borrowers to take a deferment, doing so made all of these borrowers INELIGIBLE for the SBA 504 Debt Refinancing Program.

But not anymore.  Thankfully, the SBA recently released guidance that now ALLOWS for the refinance of conventional debt even if the borrower took deferment – however, there are a couple of requirements as follows:

1. The deferment had to have been granted on or AFTER March 1st 2020; and

2. The borrower must bring itself CURRENT on all payments deferred – essentially, the borrower must make up any payments as if no deferment was ever granted prior to submission of a loan request.

This is HUGE as it now makes many borrowers eligible as long as they bring themselves current.  Keep in mind that the conventional debt must be seasoned for a minimum of 2 years to be eligible.

Another important change involves the refinance rules for limited or single purpose property types, such as gas stations, hotels, ALFs, marinas, car washes, etc.  Historically, the max LTV for a limited or single purpose property was 85%.  The SBA has now increased the max LTV to 90% on these property types.

The change is temporary until the “first day of the calendar quarter following the end of the economic recession as determined by the National Bureau of Economic Research or its equivalent.” According to the Bureau, the U.S. economy entered into a recession in February 2020.

With the COVID environment affecting appraised values of these property types, this is a helpful change for small business owners looking to improve the terms of their debt, and lenders looking to reduce their exposure.

Click here for complete details about the SBA 504 Debt Refinancing Program.

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at  Phone: 850.681.3601 or toll-free at 800.504.LOAN.