New Legislation for the 504 Refinance Loan Program
New legislation has been proposed in Washington:
HR 5297 - The Small Business Jobs and Lending Bill.
HR 5297 would allow the 504 loan program to be used to refinance an existing commercial loan and it may allow business owners to refinance their commercial real estate and include "eligible" business expenses.
Small Business Capital
If the bill becomes a law it could help business owners:
- consolidate business debt
- refinance to a better rate and longer term
- refinance before the balloon payment of their current loan comes due
SBA Jobs Bill News
The SBA 504 Loan Blog - provides more up to date information about HR 5297, otherwise known as the Small Business Jobs Bill or the "Small Business Lending Bill."
Please contact us if you need help with a commercial mortgage refinance now - or if you would like us to contact you when the SBA refinance bill is finalized.
SBA 7a - (Currently) a better option for loans up to $2 million (possibly $3MM or $5MM)
The SBA 7a loan is the best commercial refinance option currently available. It is available for loans of up to $2 million, but the small business bill mentioned above includes a provision to take the max loan amount to $5 million.
Please visit our 7a loan page by clicking the following link: SBA 7a.
SBA Alternatives
Small Business Administration lending programs are currently the best available financing for most small and mid-sized businesses and there is a lot of hope that the current bill will pass, but there will still be those who are ineligible for SBA financing.
These business owners may be eligible for "Asset-Based Lending" programs, which have proven to be a good alternative to SBA loans and could provide working capital for various business needs.
Asset-based programs available include:
- Accounts Receivable Financing
- Factoring
- Equipment Leasing
- Purchase Order Financing
- Contract Monetization for Service and Financial Contracts
- Merchant Credit Card Advance Lending
- Sale/Leasebacks
Some of these programs are available for A thru D credit, so please contact us at 1-800-414-5285 if you want to explore your options.
Other Non-SBA programs worth looking into include:
- Construction Project Financing
- Tenant Improvement Financing
New Higher SBA Loan Limits
A new higher 504 loan limit of $5.5MM is also included in the legislation. This limit would allow even larger projects (possibly as high as $15MM) to be financed through the program.
This bill is not passed yet, but please contact us or check back to this site as we will be updating with new information as it becomes available.
Current SBA 504 Refinance Guideline Involves a " Business Expansion"
Currently you are only eligible for a refinance if you are:
- planning a fairly major expansion of your commercial building or property
- refinancing another property owned by the same business as part of an expansion.*
- financing expensive renewable energy equipment for your facility (e.g. solar panels)
In all cases, the amount of the debt to be refinanced has to be 50% or less of the cost of the expansion. (See "new guidelines" below for additional details).
Debt Refinance and Business Expansion
The 504 loan program now allows some debt refinancing as long as a business expansion is involved and the debt to be refinanced does not exceed 50 percent of the projected expansion cost. (In other words, it needs to be a large expansion because the current debt cannot be more than 1/2 of what you are spending on the expansion).
For example, if you currently owe $1,000,000 on your commercial building your expansion cost would have to be $2,000,000 to qualify for a 504 refinance.
Please note that if you have more than 1 location the following provision in the new rules could help you.
*The debt being refinanced does not need to be for assets at the same location or for the same type of property as the project being financed as long as the operation at the other location has the same NAICS code as the operation at the Project location.
Essentially, this means that if your business has multiple locations - perhaps a warehouse and a retail store - and you were looking to expand one of them, you could use the 504 to pay off the debt on one property and expand the other.
Of course, if you have a lot of equity in your property - 30% or more - then we can look at refinancing your property with a conventional mortgage, so please get in touch if you would like to look at your options.
Current 504 Refinance Requirements
- The debt being refinanced must have been incurred to acquire land, construct a building or to purchase equipment and the assets acquired need to be eligible for financing under the 504 program.
- Existing debt must be collateralized by fixed assets.
- Existing debt was incurred for the benefit of the small business.
- Refinance must provide a substantial benefit to the borrower. “Substantial Benefit” is defined as the portion of the new installment amount attributable to the debt being refinanced and must be at least 10 percent less than the existing installment amount.
- The borrower must be current on all payments due on the existing debt for not less than 1 year preceding the date of the refinance.
- Costs essential to the refinance, such as prepayment penalties, financing fees or other refinancing costs, required by the original terms of the debt instrument, may be included in the debt refinance portion of a Project.
- SBA 504 Loan Fees are still waived through the end of 2009.
- The SBA 504 maximum loan amount can go as high as $10 million+ (sometimes higher) if you have a manufacturing facility or if you Go Green.
- Refinancing enables you to take advantage of record low SBA 504 rates.
Conventional loans are still available for properties with more equity - typically at least 40%. Feel free to 1-800-414-5285 to see if you qualify for a "conventional" commercial mortgage refinance.
