Changes to… SBA 504 Debt REFINANCE Without Expansion

As of July 30, 2021,SBA implemented program changes that significantly affect the eligibility and requirements for the SBA 504 Debt Refinance program. These are permanent changes to the 504 program that make it less restrictive.

Eligibility Requirements Recapped

  • Original debt incurred not less than 6 months prior to SBA application
  • 85% or more of the original use of proceeds of the debt to be refinanced was for commercial real estate, equipment, or other long-term fixed assets
  • Original debt incurred for the benefit of the small business
  • Small business has been in operation for at least two years
  • Business occupies at least 51% of commercial real estate
  • Review of payments for past 12 months to determine credit worthiness
  • Federally guaranteed debt can be refinanced subject to specific conditions (lender letter and substantial benefit of 10%)
  • May consist of one or more commercial loans to be refinanced
  • Loan to value of 504 loan and Lender loan at 90% if straight debt refinance
  • Loan to value of 504 loan and Lender loan at 85% if debt refinance with cash out for Eligible Business Expenses
  • Eligible Business Expenses (EBE) – business operating expenses incurred but not paid at SBA application date or that will become due within 18 months (include salaries, rent, utilities, inventory and other business expenses that are not capital expenditures) – totaling not more than 20% loan to value

Refinance Financing Structure (Example – Existing Debt $1,000,000 / As-Is Appraised Value $1,500,000)

Use of FundsSource of Funds
Existing Equity$ 225,000Third Party Lender Loan$675,00045%
Refinance Existing Debt$1,000,000SBA 504 Loan$600,00040%
Cash Out for EBE$ 275,000Borrower Contribution$225,00015%
Total Project Costs$1,500,000Total Sources$1,500,000100%

Meets SBA Requirements:

  • Total Financing at Loan to Value with EBE of 85% – For this example: LTV is $1,275,000 or 85%
  • Cash Out for Eligible Business Expenses (EBE) at 20% LTV – For this example: EBE is $275,000 or 18.3%

Preliminary Documentation Needed

  • Original and current debt information on debt to be refinanced – note, lien instrument, modifications, payment transcript
  • Current payoff amount on debt to be refinanced
  • Eligible Business Expenses to be paid through the refinance project
  • Three most recent years of business and personal tax returns (principals owning 20% or more)
  • Current appraisal or approximate value of the assets being refinanced

Contact FDDC for more information and to determine eligibility for your refinance projects.