SBA 504 Program now can refinance existing debt

Starting February 28, 2011, the U.S. Small Business Administration's (SBA) 504 loan program will begin accepting applications for refinancing of existing qualified real estate debt for small business owners who are facing impending balloon payments before December 31, 2012.
 
In a press release, SBA Administrator Mills pointed out “The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years. As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs.”

Horizon Certified Development Company is the SBA’s conduit for providing 504 loans in Ohio and Kentucky. The ability to use a government-guaranteed 504 loan to refinance an existing commercial real estate debt was authorized under the Small Business Jobs Act, but it is a temporary program that will expire on September 27, 2012.

SBA 504 refinancing loans will be structured like a traditional 504 loan. A bank or third party lender provides at least 50% of the loan, the SBA – through a CDC –provides up to 40% of the loan and the small business borrower must provide equity of at least 10%. This equity may be drawn from the existing asset valuation, rather than new cash injection.

Borrowers will be able to refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Loan proceeds may not be used for other business expenses, and existing 504 projects and government-guaranteed loans are not eligible to be refinanced. SBA is expected to issue further regulations to fully implement the legislative directive to enable borrowers to use excess real estate equity for working capital in their businesses.

The new refinance program is only for businesses that can demonstrate that their loans are current and that they have successfully made all required payment over the last twelve months. There will also be a new, independent appraisal required for all projects. But even in the face of these requirements, SBA anticipates as many as 20,000 small businesses will be able to take advantage of these special refinancing loans.  Small business owners who wish to discuss their loan refinancing options should contact Horizon Certified Development Company now to begin the application process.