The SBA’s 504 refinancing program has finally been implemented. It gives owner-user commercial real estate owners with existing mortgage loans facing imminent loan maturity or balloon payments the opportunity to refinance with a government-guaranteed SBA 504 loan.
Some of the program parameters are as follows:
- The small business must have a mortgage loan that comes due for renewal on or before December 31, 2012.
- The first mortgage loan and the 504 loan combined cannot be more than 90% of the fair market value of the collateral.
- The new refinanced loan must be structured as follows: bank – not less than 50%, CDC – not more than 40%, borrower equity – not less than 10%.
- Eligible 504 project costs must comprise at least 85% of the original loan amount.
- The loan must be current for the past 12 months and never have been past due more than 30 days.
- The date of the loan to be refinanced must be no less than two years prior to the date that the refinance application is received by the SBA.
- Loans with government guarantees including existing 504 loans, 7(a) loans, and USDA loans are not eligible for this refinance program.
The SBA 504 refinancing program will be very helpful for business owners who operate their business in owned commercial real estate that face a loan maturity or balloon in the next 24 months. “While there are surely some owners with these pressures, a larger universe of potential borrowers would develop if the 504 refinance program had adopted the more liberal SBA 7(a) rules, which include a payment savings test and no fast rules on balloon maturities,” noted Michael D. Sneden, Executive Vice President of ValueXpress.