SBA 504 Refinance for Lenders
SBA 504 Refinancing
The SBA 504 Refinance Program is designed to assist small businesses in refinancing eligible fixed assets that were originally financed with a commercial loan. The program aims to provide small businesses with an opportunity to refinance their existing debt and improve their financial situation.
Businesses That Qualify
Business that has been in operation for at least two years.
Can demonstrate a positive economic impact by creating or retaining one job for every $90,000 of 504 loan amount, or every $140,000 for manufacturing companies.
Loans that meet a public policy goal or a community development goal do not have to meet the job creation/retention requirement.
Eligible Use of Funds
The SBA 504 Refinance Program allows eligible businesses to refinance loans, including government-guaranteed debt, with “cash out“ options up to 20% of eligible fixed assets’ appraised value, including closing costs and interim loan interest.
REFINANCING “QUALIFIED DEBT“
Loans that meet the following criteria can be refinanced:
- 85% or more of the original use of proceeds were SBA 504 Eligible (fixed assets and related costs), and secured by the eligible fixed asset.
- For the benefit of the small business applicant.
- Incurred at least 6 months ago.
- Acceptable payment history.
- Refinancing will provide a “Substantial Benefit” to the applicant as evidenced by 10% monthly payment savings or elimination of a balloon note.
- Existing government guaranteed debt, such as SBA 7(a), SBA 504, USDA loans, and others, can be refinanced if they meet the eligibility requirements.
ELIGIBLE BUSINESS EXPENSES
Loan proceeds, not exceeding 20% of the appraised value of the eligible fixed assets being refinanced, can be used for “cash out” purposes. However, these funds cannot be used for capital expenditures. Instead, they can be utilized to pay off business lines of credit or credit card debt (in some cases), and to cover future operating expenses. Loans providing cash out, cannot exceed a 85% loan to value.
ELIGIBLE CLOSING COSTS, BANK FEES, AND INTERIM LOAN INTEREST
Loan proceeds may include eligible closing costs, bank fees, and interim loan interest.
How is the 504 Loan Structured?
50%
LENDER 1ST MORTGAGE
- In some cases where the building is multi-use and the loan-to-value is below 90%, the lender’s portion may be less than 50%.
- Borrower negotiates the terms with the Lender, however, Lender’s loan term must be at least 10-years on 20/25 year loan and 7-years on 10-year loan.
40%
SBA 504 LOAN
- 504 loan cannot exceed $5 million, or $5.5 million for a Small Manufacturer.
- 504 fully amortizing loan for 10, 20, or 25-Years.
- Rate Fixed at 504 Loan Funding
- Fees on the 504 loan total approximately 2.17% of the loan amount and 0.5% of the first mortgage loan amount.
10%
BORROWER EQUITY
- Borrower contributes a minimum 10% in equity. Typically in the form of the eligible fixed assets being refinanced, or if needed, additional cash or equity in additional collateral.
Like the original 504 Loan program, terms of 10, 20, and 25-years are available, based on the useful life of the collateral assets.