The SBA 504 loan program is fast becoming the most attractive commercial owner-occupied real estate financing tool in the market today. Changes made by the American Recovery & Reinvestment Act eliminating fees and record low 20-year fixed rates have contributed to a surge in demand in the program.
A permanent change that now permits limited debt refinancing as an eligible 504 project cost is another positive change to the program.
The refinancing must involve expansion of a small business. Expansion is broadly defined to include any project that involves the acquisition, construction or improvement of a building or equipment for small business.
Some of the program requirements are as follows:
1. Refinanced debt cannot exceed 50% of the project expansion costs.
2. Refinanced debt originally must have been used for 504-eligible assets.
3. Refinanced debt was incurred for the benefit of the small business.
4. Refinanced debt is collateralized by the fixed assets.
5. Refinancing will provide a substantial benefit to the small business.
6. Borrower has been current on all refinanced debt for not less than 1 year preceding the date of refinancing.
7. The refinance will provide better terms or rate.
8. The 504 loan will only be used for expansion or refinance of eligible refinanced debt.
9. 504 loan proceeds are not to be used to refinance debt to:
a. An associate of the 504 applicant
b. An SBIC
c. Any creditor in a position to sustain a loss causing
a negative shift to the SBA.
10. The refinanced debt must have been used to acquire 504 eligible fixed assets (no working capital). Debt can be segregated from working capital portion.
11. The refinanced debt does not need to be for the new project expansion. Assets can be secured by fixed assets from another location that has the same NAICS code. May include: a. Land sale contracts; b. Contracts for deed; c. Capital Leases
12. The refinanced debt can be from multiple fixed asset loans.
13. The fixed asset securing the eligible refinanced debt will be added to the eligible project costs.
14. Real Estate Appraisal and Environmental Assessments will be required for all eligible fixed assets included in the refinanced debt.
15. Refinanced Debt may include: a. 7a guaranteed loans; b. 504 loans; c. Seller financing
16. Current SBA 7a or 504 lender does not have to approve refinancing.
17. SBA must approve “same institution debt’
For more information on this very important 504 feature, please contact SEEDcopa.