SBA's 504 Commercial Refi Program Starts Feb. 28
Posted February 17, 2011
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McLEAN, Va. - The countdown is on for the U.S. Small Business Administration to begin accepting applications for refinancing existing qualified real estate debt for small business owners facing balloon payments before Dec. 31, 2012. The SBA 504 loan program's door opens Feb. 28.
"The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years," assessed Karen Mills, the SBA's administrator, citing concern that businesses in good standing could be facing foreclosure due to balloons. "This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs."
The SBA's conduit for the 504 loans will be CDCs, Certified Development Companies. The program expires Sept. 27, 2012.
The SBA 504 refi will be package like a traditional 504 loan, with a bank or third pary lender providing at least half of the amount. The CDC will provide 40 percent and the small business borrower must provide a minimum of 10 percent equity. In a press release, the SBA pointed out that the equity may be drawn from the existing asset valuation, rather than new cash injection.
Under the program, borrowers who are current on loans can refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. The loans can't be used for other business expenses nor can it be used to refinance existing 504 projects or government-guaranteed loans.
The National Association of Development Companies has been monitoring the new SBA regulations. "We have been receiving at least ten inquires a week since the refinance provision was announced as part of the Small Business Jobs Act in September 2010. Small businesses and banks have been clamoring to take advantage of this new, more affordable refinance option as a means to hold on to critical business properties," said Chris Crawford, president of the trade association. "In many cases, this will mean saving a thriving business from closure if it could not refinance maturing debt."
The program does require a new, independent appraisal for properties. However, the SBA projects as many as 20,000 small businesses will be able to take advantage of the refinancing option. SBA has hired more than 35 new loan processors to handle the increased workload at ots Sacramento Loan Servicing Center.
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