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SBA 504 Refinancing

The SBA has released the guidelines for the reauthorization of the 504 Debt Refinancing Program.  The SBA began accepting applications on June 24, 2016.

The following are some of the eligibility requirements to refinance existing debt through the SBA 504 loan program:

  1. The borrower must have been in operation for all of the two year period ending on the date of application, with no change in ownership, partially or fully, during that time.
  2. Any refinancing must include "Qualified Debt" and may include "Eligible Business Expenses".
  3. "Qualified Debt" means a commercial loan in which:
    1. Substantially all (85% or more) of the proceeds of which were used to acquire an Eligible Fixed Asset (land, buildings, equipment, acquired, constructed or improved by a small business for use in its business operations).
    2. Was incurred not less than 2 years prior to the date of application.
    3. Was for the benefit of the small business seeking the refinancing.
    4. Has been secured by the eligible fixed asset for at least 2 years.
    5. Which the borrower has been current on all payments due for not less than one year preceding the date of application (current meaning no payment was more than 30 days past due).
    6. Is not subject to a guarantee by a Federal agency or department (i.e. SBA 7(a), SBA 504, or USDA).
    7. Is not a Third Party Loan which is part of an existing 504 project.
  4. The qualified debt may consist of a combination of two or more loans, provided that each of the loans satisfies the Qualified Debt requirements.
  5. "Eligible Business Expenses" are limited to the following business expenses:
    1. "Other Secured Debt" - debt that has been secured for at least 2 years prior to the date of application by the same Eligible Fixed Asset(s) securing the Qualified Debt and for which the borrower has been current on all payments due for not less than one year preceding the date of application (current meaning no payment was more than 30 days past due).
    2. "Business Operating Expenses" - business expenses other than Qualified Debt or Other Secured Debt, including salaries, rent, utilities, inventory, or other obligations of the business, that were incurred but not paid prior to the date of application or that will become due for payment within 18 months after the date of application.
  6. If the borrower is requesting that the refinancing include Eligible Business Expenses, the application must include a specific description of the Eligible Business Expenses and an itemization of the amount of each expense.
  7. For projects that refinance only Qualified Debt and Other Secured Debt, the maximum loan to value of the refinancing project allowed is 90%.
    1. For projects when the amount of Qualified Debt and Other Secured Debt being refinanced is more than 90 percent of the value of the Eligible Fixed Asset(s) securing the Qualified Debt, the borrower must provide additional cash or other fixed asset collateral acceptable to the SBA so as not to exceed a 90% loan to value of the refinancing project.
  8. For projects that include the financing of Business Operating Expenses, a maximum 75% loan to value of the refinancing project will apply and the Business Operating Expenses portion of the project may not exceed 25% of the value of the Eligible Fixed Asset(s) securing the Qualified Debt.  Any fixed assets added to satisfy the 90% loan to value requirement in #7 above will not serve to increase the amount of Business Operating Expenses that may be financed.
  9. Fees - for loans approved under the Debt Refinancing Program during Fiscal Year 2016 (ends September 30, 2016), the total annual guaranty fee is 0.958% on the unpaid principal balance of the debenture (currently 0.914% for standard SBA 504 loans).