Lighten the Debt Load with 504 Refinance

Are you working through crisis mode with your clients, who need to relieve the stress of continued expenses with irregular revenue? Consider FDDC’s small business refinance possibilities through the SBA 504 program while fixed rates are low. Two options offered for refinancing under the SBA 504 program include: (1) Refinance existing debt along with an expansion of the project property or (2) Refinance only existing debt with no expansion costs (this option allows for some cash out for eligible operating expenses).

Here are more details for each type of 504 refinance…

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 in operation at least 1 year
  • Existing debt has to be for fixed assets (100%) or only use portion of debt that was for fixed assets
  • Current on payments for 1 year
  • Existing debt can be less than 2 years old
  • Can refinance 7a and 504 with the Third Party Lender Loans made with a 504
  • The refinance must provide a substantial benefit to the business – a savings of at least 10% (we have a worksheet to calculate this) or refinancing a balloon payment is automatically considered a substantial benefit
  • The 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 expansion project property (same location)

SBA 504 Debt Refinancing Program (no expansion)

  • Only existing debt (no expansion costs) can be included in the 504 project
  • Qualified debt must be at least 2 years old (or recently extended maturity) and used to acquire an eligible fixed asset
  • Current on payments for 1 year
  • Cannot refinance 504/7a/USDA/ or Third Party Lender Loans made with a 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 85% and operating expenses cannot exceed 20% of value
  • Must meet all other eligibility requirements of SBA 504 program
  • Subject to an additional (.0015%) annual servicing fee (added to the full term effective rate)

Contact FDDC to discuss the SBA 504 Refinance options.