The SBA 504 Loan Program can be a valuable resource for small business owners facing a balloon payment by providing refinancing options with competitive rates, longer repayment terms, and fixed-rate financing. It helps alleviate financial stress and provides a pathway to more stable and manageable debt repayment.


Balloon Payments

Balloon payments refer to a large, lump-sum payment made at the end of a loan term.  While balloon payments can offer flexibility in loan repayment schedules, they do require careful consideration of financial circumstances and the ability to make the final payment when due.

Here are some key points about balloon payments:

  1. Structure: Loans with balloon payments often have lower monthly payments for most of the loan term, followed by the large balloon payment at the end.
  2. Purpose: They can make loans more affordable in the short term by reducing monthly payments. This can be useful for borrowers who expect to have higher income or assets in the future.
  3. Risk: Balloon payments carry the risk that borrowers may not have the funds available to make the large final payment when it becomes due. This could lead to refinancing, renegotiation of terms, or even default.
  4. Types of Loans: Balloon payments are common in commercial real estate loans, where the property is expected to appreciate in value over time, or in car loans where the value of the car may not fully depreciate by the end of the loan term.
  5. Regulation: In some jurisdictions, there are regulations governing balloon payments to protect consumers, ensuring they are aware of the payment structure and potential risks.


SBA 504 Loans – Your Solution When Facing a Balloon Payment

The SBA 504 loan program can be particularly helpful for small business owners who are facing a balloon payment. Here’s how the SBA 504 program can assist in such situations:


Refinancing Options:

The SBA 504 program allows small business owners to refinance existing commercial mortgages or other business debt that has a balloon payment coming due. By refinancing through the SBA 504 program, borrowers can potentially secure a fixed-rate loan with more favorable terms and longer repayment periods, which can make payments more predictable and manageable.


Lower Interest Rates:

The SBA 504 program offers competitive interest rates, which can be lower than traditional commercial loans or other financing options. Lower rates can reduce overall borrowing costs and make monthly payments more affordable.


Longer Repayment Terms:

SBA 504 loans typically offer longer repayment terms compared to conventional loans. This can help spread out the repayment of the refinanced debt over a longer period, reducing the financial burden of a large balloon payment.


Fixed-Rate Financing:

One of the key benefits of the SBA 504 program is that it offers fixed-rate financing for a significant portion of the loan amount (typically 50% or more). This stability in interest rates protects borrowers from potential fluctuations in interest rates over the life of the loan.


Access to Capital for Growth:

Beyond refinancing existing debt, the SBA 504 program also provides access to capital for small businesses to finance expansion, equipment purchases, or other eligible projects. This can support business growth and improve cash flow management, indirectly helping to address financial challenges associated with balloon payments.


Support from Certified Development Companies (CDCs):

SBA 504 loans are administered through CDCs, which are nonprofit organizations certified by the SBA to facilitate economic development within their communities. CDCs work with lenders and borrowers to structure SBA 504 loans that meet the specific needs of small businesses, including those facing balloon payment challenges.



How Does SBA 504 Refinancing Work?

A 504 refinance loan is set up in the same way as the standard 504: It offers low, fixed rates on loans with 20- or 25-year terms that are fully amortized.  A commercial bank provides a 1st mortgage and the SBA (through Growth Corp) provides a second mortgage.  As the small business, your contribution is typically as low as 10%, which is often covered by the equity from the property itself. If that’s not possible, cash or other assets can be used.

You can refinance up to 90% of the current appraised value of the property. If eligible business expenses are being refinanced along with property, the maximum proportion is 85%. Another option available is cashing out up to 20% of the building’s value for business expenses, such as operating costs, employee wages and inventory.


Cash Out for Working Capital 

The SBA 504 Loan Program offers business owners the opportunity to secure below-market, fixed interest rates, amortized over 25 years, for up to 90 percent of the appraised value of commercial real estate property.

Loans are administered by a Certified Development Company (CDC) such as Growth Corp and granted in conjunction with a conventional lender (usually a bank).  That way, with the 504, the borrower’s equity injection is typically much lower than traditional business loans and can help you keep more of your cash in the business rather than tied up in real estate.  Plus, existing equity in the collateral often fulfills the down payment requirement.



504 Loans:  A Powerful Tool for Strengthening and Growing Your Business

Refinancing your commercial mortgage with an SBA 504 loan can help you free up trapped capital and enjoy lower monthly payments due to the low, long term, fixed interest rate.  An SBA 504 loan can also be used to:

  • purchase land or buildings
  • construct, upgrade or renovate buildings
  • purchase equipment with a service life of ten years or more

SBA 504 loans are a very powerful tool, yet they remain under-utilized because many small business owners just aren’t aware this financing option exists.  In FY2020, 504 loans helped fuel $5.8 billion in new capital investments for 7,000 businesses throughout the U.S.


Small businesses can refinance debt, reduce a line of credit or payables and obtain working capital using a 504 Refinance Loan


Will My Project Qualify?

If you answer “yes” to the following questions, your project will likely qualify for the 504 Refinance Program.

  • Is the loan to be refinanced at least 6 months old?
  • Is the property being refinanced at least 51% owner-occupied or long-term equipment?
  • Was the debt to be refinanced originally used for the purchase/improvement of fixed assets?


Why Growth Corp?

We know your success depends on having access to expansion capital that is both affordable and accessible.  Our experienced staff takes pride in making a difference in the lives of small business owners and their employees.  Start-ups to seasoned businesses and everything in between can benefit from working with Growth Corp.  Here’s why:

  • We’re the #1 SBA 504 Lender in Chicago and Illinois.  Growth Corp also consistently ranks as one of the top ten SBA 504 Lenders nationwide.
  • We’re the largest SBA 504 Refinance Lender in the country.
  • SBA recognized Growth Corp as an Accredited Lender after a thorough review of its policies, procedures and prior performance.  The prestigious ALP status grants Growth Corp increased authority to process and close 504 loans, which provides expedited processing of loan approvals and closings.
  • We simplify the loan approval process.  Our team coordinates the entire process from application through closing, funding and servicing, making it seamless for you and your bank lender.
  • We are SBA 504 Experts.  Our responsive and educated staff focuses almost exclusively on SBA 504 loans.  We’ve got the process down to a science!
  • We’ve worked with thousands of businesses, spanning various industries.  That means, there’s not much we haven’t seen.  Your goals, project structure and business type will likely be familiar to us and we’ll understand your unique situation.
  • Our mission is to advocate for small business.  We love our communities and believe small business is the foundation of their economic prosperity.  We will do all we can to support you and your business goals.  Connect with someone from our lending team today!