Guidelines Vary on 504 Refinance With or Without Expansion
SBA 504 Refinance with Expansion
- Existing debt of up to 50% of the expansion costs (construction, professional fees, interim interest) can be included in the 504 project
- Business must be in operation at least 1 year
- Existing debt has to be for fixed assets or only use
portion of debt that was for fixed assets - Business must be current on payments for 1 year
- Existing debt can be less than 2 years old
- Can refinance SBA 504/SBA 7a/Third Party Lender
- Loans made with an SBA 504 project
- Refinance must provide a substantial benefit to the
business – a savings of at least 10% or refinancing a balloon payment is automatically considered a substantial benefit - Refinance must provide better terms or interest rate (Examples: longer maturity, lower interest rate, improved collateral conditions, less restrictive loan covenants)
- Equity in land & building can be used to meet 504 equity requirements
- Excess debt that exceeds 50% of the cost of expansion can be consolidated into the Third Party Lender Loan as long as the debt was secured by the project property
![WithExpansion](http://fddc.1stdistrict.org/wp-content/uploads/2016/11/WithExpansion.jpg)
SBA 504 Debt Refinancing Program (Refinance Only)
- Only existing debt (no expansion costs) can be included in the 504 project
- Qualified debt must be at least 2 years old and used to acquire an eligible fixed asset
- Other secured debt must be at least 2 years old and secured by same fixed asset
- Business must be current on payments for 1 year
- Cannot refinance SBA 504/SBA 7a/USDA or Private Lender Loans made with SBA 504
- Refinance only projects maximum loan-to-value is 90%
- Cash-out refinance is permitted to cover most eligible business operating expenses
- Business operating expenses include salaries, rent, utilities, inventory, or other business obligations incurred but not paid or will become due in next 18 months
- When business operating expenses are included, the maximum loan-to-value is 75% and operating expenses cannot exceed 25% of value
- Must meet all other eligibility requirements of SBA 504 program
For more details, contact First District to discuss your refinance project and its SBA 504 eligibility…605-882-5115.