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Effective Immediately: Fees Eliminated on 504 Loans; Secondary Market Revived

Mar 2009

Effective today, March 16, 2009, fees for both borrowers and lenders on 504 loans have been temporarily eliminated, announced Acting Administrator Darryl K. Hairston of the U.S. Small Business Administration (SBA).

Both the bank participation fee of 0.5% and the certified development company (CDC) processing fee of 1.5% will now be zero through calendar year 2009, or until the funds are exhausted, according to the SBA. This change reduces upfront borrower costs by $10,000 on a typical 504 loan.

The fee elimination is retroactive to Feb. 17, 2009, the day the President signed the American Recovery and Reinvestment Act. The SBA is currently developing a mechanism for refunding fees paid on loans since then.

Additionally, effective immediately, the Treasury Department will commit up to $15 billion to help unlock the frozen credit markets by purchasing small business loan securities currently frozen on the secondary market, according to the SBA.

By purchasing these securities, it will unlock these secondary markets, and in turn, free up more capital to jumpstart lending for small business owners.

Another important, but yet to be implemented, change under the Act is the refinancing of existing government guaranteed debt, including 504 loans. Permissible debt financing includes:

(A) Any 504 project "may include a limited amount of debt refinancing."

(B) If the project involves expansion of the small business, an amount not to exceed 50% of the project cost may be refinanced, if:

• Proceeds will be used to acquire land, to construct or expand building or to purchase equipment.
• Existing debt is collateralized by fixed assets.
• Existing debt was incurred for benefit of small business.
• Proceeds will be used only for refinancing existing debt or costs related to the project.
• It will provide a substantial benefit when prepayment penalties, financing fees and other financing costs are accounted for.
• Borrower is current on all payments of the existing debt for not less than one year.
• New financing will provide better terms or interest rate.
• The Act does not exclude government guaranteed debt from indebtedness that may be refinanced, thus making 504 loans and 7(a) loans eligible for refinancing.

Florida First Capital will notify you as soon as it receives implementation details on the refinancing changes.

For more information on Florida First Capital and its 504 loan program, visit www.ffcfc.com, email us at insider@ffcfc.com or call 888.320.5504.

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