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SBA 504 Debt Refinancing Without Expansion Open for Business

Sep 2021

The Small Business Administration (SBA) 504 Debt Refinancing Program WITHOUT expansion provides a tremendous opportunity for small business owners to reduce their monthly debt payments and access equity trapped in commercial real estate holdings by refinancing conventional real estate loans. Borrowers may also refinance eligible business operating expenses (cash-out option).

Note: the 504 Debt Refinancing Program without expansion is not impacted by the temporary shutdown of the regular SBA 504 Loan Program, as it operates under a separate authorization lending cap.

The program was recently expanded under section 328 of the Economic Aid Act, which significantly extended its usefulness to assist small business recovery and growth.

For borrowers that refinance only long-term fixed asset debt (no cash out), the maximum LTV is 90% of the fair market value of the eligible fixed asset(s).

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.

Debt is not included as an eligible business expense; however, debt incurred with a credit card or a business line of credit may be included.

Refinance of Existing Government Guaranteed Debt

SBA 504 refinance projects may include federally-guaranteed debt under the following conditions:

• For an existing 504 loan, either both the third party loan (1st mortgage) and the SBA 504 loan (2nd mortgage) must be refinanced, or the third party loan must be paid in full.
• For an existing 7(a) loan, the Certified Development Company must verify in writing that the present lender is either unwilling or unable to modify the current payment schedule. The existing 7(a) loan may be refinanced in whole or in part.
• In the case of same institution debt, if the third party lender or the Certified Development Company affiliate is the 7(a) lender, the loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms.
• The refinancing of any federally-guaranteed debt must provide a “substantial benefit” to the borrower – minimum 10% savings on the new installment amount attributable to the debt being refinanced.

Qualification Criteria/Down Payment

• At least 85% of the original loan was used to acquire, construct or improve fixed assets.
• The borrower must have been in business for 2 years prior to submission of the refinance application and been in operation for all of the 2-year period ending on the date of application, as evidenced by the financial statements submitted at the time of application.
• The qualified debt was incurred not less than 6 months prior to the date of the application and has been secured by eligible fixed asset(s) for at least 6 months.
• An independent appraisal of the fair market value of the project assets and any additional assets offered as additional collateral must be provided.
• In addition to a cash contribution, the borrower’s down payment can be satisfied by its equity in the eligible fixed asset (the 504 project).

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms up to 25 years for the purchase of major fixed assets, such as owner-occupied commercial real estate, renovations, new construction, energy efficient “green” initiatives and/or fixed heavy duty machinery and equipment, as well as the refinance of commercial mortgage and other business debt with or without a cash-out option.

504 loans are paired with private-sector commercial loans and provide up to $5 million of aggregate SBA eligibility on standard 504 projects; up to $5.5 million per 504 energy efficient green project not exceed $16.5 million in the aggregate; and up to $5.5 million per eligible small manufacturing project with no limit on total SBA dollars available. These are SBA 2nd mortgage loan portions only; there is no limit on overall project dollar size.

For more information about SBA 504 loans in Alabama, Florida or Georgia, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.