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There's Never Been a Better Time for a SBA 504 Refi Loan than Now!

Nov 2021

Thanks to recent rule changes to the Small Business Administration (SBA) 504 Debt Refinancing Program combined with fixed interest rates still hovering at historic lows; long amortization terms; decreased 504 programs fees for FY 2022; the ability to refinance government guaranteed debt; and a cash-out option, now is the ideal time for small business owners to lighten their monthly debt payments by refinancing high interest commercial real estate loans through the SBA’s 504 Debt Refinancing Program.

Under the program available through Florida First Capital/First Capital Finance, small businesses can take advantage of below-market, fixed interest rate refinancing with repayment terms up to 25 years for up to 90% of the appraised value of commercial real estate property. Loans made under the 504 Debt Refinancing Program are 504 loans and are subject to all applicable SBA 504 Loan Program requirements.

Borrowers have the option to refinance with or without expansion.

504 Debt Refinancing WITH Expansion

• Debt refinancing with expansion is a strong option for small business owners looking to grow and expand their operations and reduce commercial debt at the same time.
• The maximum LTV is 90% of the fair market value of the eligible fixed asset(s) (no cash-out option).
• A project involves expansion if it includes the acquisition, construction or improvement of land, building or equipment for use by the borrower.
• Any amount of existing qualified debt that does not exceed 100% of the cost of the expansion may be refinanced (increased from not more than 50%).
• The debt being refinanced will be added to the expansion cost to establish the total project costs.

504 Debt Refinancing WITHOUT Expansion

• 504 loan proceeds are to be used to refinance qualified debt with no money going toward expansion.
• 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).
• 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.
• Eligible business operating expenses include any other expenses of the business that are not capital expenditures (e.g., salaries, rent, utilities, inventory, etc.) that were incurred but not paid prior to the date of the refinance application or that will become due for payment within 18 months after the date of application.
• Debt is not included as an eligible business expense, except debt that was incurred with a credit card or a business line of credit may be included if the credit card or business line of credit is issued in the name of the small business and the applicant certifies that the debt being refinanced was incurred exclusively for business related purposes.

Refinance of Existing SBA 7(a) and 504 Loans

SBA 504 refinance projects with or without expansion may now 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 (CDC) 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 CDC 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.

For information on qualification criteria, loan structure and down payment schedule, please visit our website here.

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 refinance 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.