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Returning the 504 Loan Program to Zero Subsidy and Reinstating the Debt Refinancing Program Gain Momentum in Congress

Jun 2013

The Senate Committee on Small Business & Entrepreneurship has approved legislation to return the Small Business Administration (SBA) 504 Loan Program to zero subsidy and reinstate on a permanent basis the 504 Debt Refinancing Program that expired last year.

The current 504 fee structure, default rate, and recovery rate create the need for an appropriation subsidy in the FY2014 federal budget of $108 million. This subsidy - equal to the program's FY2013 subsidy - is fueling criticism of the 504 program even by some of its strongest supporters that the program is having a negative impact on the federal budget.

The legislation would impose fee requirements on SBA Certified Development Companies, who administer 504 loans, to more rapidly return the federal program to zero subsidy in the federal budget, a status it had held before the financial crisis and the resulting collapse of the commercial real estate market in recent years.

The language approved by the Senate Committee does not establish a new fee structure. Rather, an adjusted fee structure, if needed, will be negotiated over the next several weeks and perhaps months. Any necessary increase in fees could be reduced or eliminated by structural program changes that would improve underwriting and recoveries. All efforts are being made to improve those two factors in the subsidy rate calculation for FY2014.

The legislation would also make the 504 Debt Refinancing Program permanent. Originally part of the Small Business Jobs Act of 2010, the temporary refinancing program did not become fully operational until February 2012. This significantly shortened the period of time that small businesses could use 504 loans to refinance qualifying existing debt before it expired on Sept. 27, 2012.

During that time, however, more than 2,700 small businesses refinanced nearly $7 billion in old, expensive debt to unleash capital that was reinvested into their businesses to create and retain jobs. The measure literally saved thousands of small businesses in communities across the country during the recession, helping them accelerate the economic recovery.

Under the refinancing program, small business owners could finance up to 90% of the current appraised property value, plus 504 eligible refinancing costs. It is estimated that reinstating the 504 Debt Refinancing Program could enable tens of thousands of small businesses to free up capital locked in their facilities to create and retain jobs.

The legislation is spearheaded by Sen. Mary Landrieu (D-LA) and Sen. Jim Risch (R-ID).

Source: National Association of Development Companies (NADCO).

For more information about SBA 504 loans in Florida, contact a Florida First Capital Loan Officer here.