The U.S. Small Business Administration (SBA) has relaxed regulations on loan qualifications, and as a result, the 504 loan program has begun accepting applications from a greater number of small businesses to refinance existing real estate debt. The SBA received extensive feedback from the 504 industry, banks and small businesses on a number of issues related to the initial 504 refinancing regulations over the past six months. The SBA also noted the low volume of refinance loans that have been processed since the program’s inception last February and decided to revise a number of restrictions that were part of its initial regulations.
A major change in the regulations enables a small business to refinance existing debt and, more important, use excess equity to obtain working capital that can be used for financing of eligible business expenses. Borrowers will be able to refinance up to 90% of the current appraised property value.
“This means the 504 refinancing program may be able to provide ‘cash to the borrower at closing’ if property equity is in excess of program minimums and if the cash-to-borrower is for eligible expenses,“ said Michal D. Sneden, Executive Vice President of ValueXpress. Eligible expenses include salaries, rent, utilities, inventory, paying down payables and satisfying other obligations of the business. “With a little creativity, we may be able to help borrowers recapture some excess equity in their properties,” said Sneden.
