504 Refinance Program
Effective February 28, 2011 the SBA is accepting requests for refinancing existing eligible loans through the 504 loan program. This is a temporary authorization that will expire on September 27, 2012. In October 2011, SBA announced some major changes to the program, which are marked in bold. Some of the key eligibility requirements are:
All of the current rules of the 504 loan program still apply, such as 51% owner occupancy, $5 million maximum 504 portion ($5.5 million for manufacturers), for profit business with less than $15 million in net worth and averaging less than $5 million in net income over the last two years.
In addition, there are new rules that determine the split in financing between the Bank, SBA and the borrower. Under refinancing rules, the split is based off of the appraised value of the assets being refinanced. The Bank's portion is no longer required to be at least 50% of the appraised value of the assets. The Bank and SBA may split the refinancing amount, as long as SBA's portion does not exceed 40% of the appraised value. The borrower may use the equity in their business (defined as the difference between the appraised value and the existing loan balance) as their source of equity. The equity injection must be at least 10% of the appraised value. We can now include business expenses (working capital, lines of credit paydown/payoff, renovations, etc) in the refinance application if the 90% LTV from the appraisal leaves "extra" funds above what is necessary to retire the existing mortgage(s). These debts are not subject to the two year eligibility requirement.
There may be situations where the borrower does not have sufficient equity in the property, and therefore is under-collateralized. If this is the situation, please contact EDC for additional information.
Therefore, an updated appraisal dated within 6 months of application, listing the bank and EDC and SBA as designated users, is required with the application.
The current effective interest rate of the 504 refinancing loan is reported on the Home page, and includes all ongoing additional fees associated with this program.
A 504 Refinancing Loan must be funded within 6 months of the approval date so timely submission of all required information is essential. For a complete list of the items necessary to complete the 504 Refinancing Application, Click here.
- The debt was incurred more than 2 years prior to the application date
- The business must be in operation during all of the 2 years prior to the application date
- The business must have been current on debt payments for the last 12 months, including deferments or other modifications.
- The total of the participating lender's loan and SBA's loan cannot exceed 90% of the appraised value.
- 85% of the original loan proceeds were for 504 eligible costs (real estate, construction, fixed assets)
- The loan being refinanced cannot be the first lien of an existing 504 project
- The project does have to meet job creation/retention or other public policy goals, or SBA's portion cannot exceed the amount of the # FTE jobs X $65,000
All of the current rules of the 504 loan program still apply, such as 51% owner occupancy, $5 million maximum 504 portion ($5.5 million for manufacturers), for profit business with less than $15 million in net worth and averaging less than $5 million in net income over the last two years.
In addition, there are new rules that determine the split in financing between the Bank, SBA and the borrower. Under refinancing rules, the split is based off of the appraised value of the assets being refinanced. The Bank's portion is no longer required to be at least 50% of the appraised value of the assets. The Bank and SBA may split the refinancing amount, as long as SBA's portion does not exceed 40% of the appraised value. The borrower may use the equity in their business (defined as the difference between the appraised value and the existing loan balance) as their source of equity. The equity injection must be at least 10% of the appraised value. We can now include business expenses (working capital, lines of credit paydown/payoff, renovations, etc) in the refinance application if the 90% LTV from the appraisal leaves "extra" funds above what is necessary to retire the existing mortgage(s). These debts are not subject to the two year eligibility requirement.
There may be situations where the borrower does not have sufficient equity in the property, and therefore is under-collateralized. If this is the situation, please contact EDC for additional information.
Therefore, an updated appraisal dated within 6 months of application, listing the bank and EDC and SBA as designated users, is required with the application.
The current effective interest rate of the 504 refinancing loan is reported on the Home page, and includes all ongoing additional fees associated with this program.
A 504 Refinancing Loan must be funded within 6 months of the approval date so timely submission of all required information is essential. For a complete list of the items necessary to complete the 504 Refinancing Application, Click here.
