Are you a small business owner who owns your own commercial or industrial building?  Are you a professional who advises small businesses who own owner-occupied real estate?  If so, you need to be aware of the historical opportunity that the SBA 504 Refinance Program offers.

Made permanent in 2016, the SBA refinance program was designed to help business owners ease their financial burdens while spurring job creation.  The longer repayment cycle on an SBA 504 loan means you’re reducing the monthly loan payments.  The money could be used to strengthen your business, such as reinvestment without taking on outside debt, hiring more employees to support growth, or starting an emergency fund.  Fixed, lower payments also gives you a peace of mind, especially when you’re facing rising operating expenses and interest rates.

How It Works:

The SBA Refinance Program allows small business owners the ability to refinance their conventional mortgage debt with a combination of traditional private financing and a combination of traditional private financing and long-term, low-interest rate 504 loan.  Small business owners can benefit in two ways:

One is through a straight refinance of existing conventional commercial debt.  Small business owners can refinance up to 90% of the property’s appraised value with 50% from a private lender and 40% from the SBA 504 Program.

The other option is a cash-out refinance where borrowers can tap into their equity to use as working capital for their business to cover costs such as hiring, inventory, and day-to-day operations. In this case, the maximum loan-to-value is 85%.  As much as 20% of the appraised value can be tapped as working capital.

SBA 504 interest rates are now at historic lows.  In September 2019 the 504 refinance rates were 3.392% for 20 years and 3.490% for 25 years.  Refinancing with a 504 loan at the current low, below market rates means being able to lock in more affordable payments over a longer period.  With a 504 loan you never have the worry of a balloon payment coming due.

Some Conditions Apply

In addition to being an eligible small business as determined by the SBA, we will need to show the SBA that:

  • This is a conventional commercial loan or seller financing.  Not SBA backed like 7(a) or part of an existing 504 project.
  • 100% of the loan is to benefit the small business.
  • 85% or more of the loan proceeds are used to acquire the building and other related costs. Things that would have been eligible to include in a 504 project.
  • The debt was incurred greater than two years ago.
  • Payments have been current for not less than one year prior to the refinancing.
  • The debt is secured by a mortgage on the building.
  • The business must occupy at least 51% or more of the building.
  • The business must show that it will meet one of the SBA’s economic development requirements as new job creation or meeting a SBA pubic policy goal.

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