Regulations Relaxed on SBA 504 CRE Loan Program
Posted October 13, 2011
We Recommend...
The U.S. Small Business Administration's (SBA) 504 loan program has begun accepting applications from a greater number of small businesses to refinance existing real estate debt after the regulations on loan qualifications were relaxed.
The SBA received extensive feedback from the 504 indutry, banks and small businesses on a number of issues with its initial regulations over the past six months. They 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 their initial regulations.
The revamped refinance program will allow many thousands more small businesses to take advantage of long term, fixed rate loans to refinance maturing real estate debt. Recent interest rates - including fees - were as low as 5.05% for SBA 504 refinance loans last month. The temporary program is set to expire on September 27, 2012.
Certified Development Companies, or CDCs, are the SBA's conduit for providing 504 loans and will be the point of contact for obtaining a refinance loan for existing real estate debt. These refinance loans are structured like traditional 504 loans. Typically, a bank or third party lender provides at least 50% of the project cost, the SBA - through a CDC - provides up to 40% of the project cost and the small business borrower must provide equity of at least 10%. This equity may be drawn from the existing asset equity, rather than new cash injection.
A major change in the regulations enables a small business to refinance not only existing debt but, more importantly, 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.
The SBA 504 refinance program is only for businesses that can demonstrate that their loans are current and that they have successfully made all required payments under original or modified bank terms. There is a new, independent appraisal required for all projects and existing 504 projects and government-guaranteed loans are not eligible to be refinanced.
Visit The National Association of Development Companies (NADCO) website at www.nadco.org for a list of CDCs throughout the country.
blog comments powered by