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One question we are hearing repeatedly is…how can I refinance SBA 7a debt into a long-term 504 loan?

This is a great question because SBA 504 Refinancing is especially important as interest rates rise.  Essentially, the 504 helps businesses lock in lower interest rates, which reduces their overall borrowing costs.  Plus, it can provide access to additional capital.

 

Refinancing SBA 7a into a 504 – Key Points

  • 85% of the original use of proceeds must be 504 eligible (real estate or equipment) and verified with a settlement statement and loan disbursement documents
  • The existing lender must provide a letter stating they are unwilling, or unable, to modify the current loan terms
  • If a same institution 7a refinance, the loan will only qualify if it was sold into the secondary market
  • The original note must have been in place for 6 months – and no past due payments for at least six months
  • The business borrower must have been in operation for 24 months or more
  • Must provide a substantial benefit to the borrower – a minimum 10% savings on the new installment amount attributable to the debt being refinanced
  • Cash out cannot exceed 20% of the appraised value OR 85% LTV, whichever is less
  • Job creation – all existing jobs measured on a full-time equivalent basis can be counted as jobs retained by the refinancing project

 

It’s important to note that refinancing an SBA 7a loan with a 504 loan can be a complex process.  It’s a good idea to get us involved early so we can assist with determining eligibility.

 

 

504 Refinancing Eligibility

Eligible Uses of the Original Loan

  • Real estate
  • New construction
  • Building expansion or renovation
  • Long-term equipment
  • Refinance of qualifying debt
  • Furniture and fixtures
  • Leasehold improvements
  • Professional fees

Eligible Debt

  • Mortgage to be refinanced must be at least six months old
  • Substantially all (85%) must originally have been used for the purchase or improvement of fixed assets
  • Property to be refinanced must be at least 51% owner-occupied
  • The refinancing of any federally guaranteed debt must provide a substantial benefit to the borrower – minimum 10% savings on the new installment amount attributable to the debt being refinanced.

Eligible Businesses

  • Must be for a for-profit, owner-occupied small business in the U.S.
  • Must have been in operation for at least two years
  • Must meet all other SBA eligibility requirements

 

 

Cash-Out 504 Refinancing

Cash-out Eligible Uses

  • Salaries
  • Rent, Repairs, Maintenance
  • Inventory, Utilities
  • Reduce a line of credit
  • 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, or to pay down/off the business lines of credit or business credit cards

Cash-out Ineligible Uses

  • Owner’s personal expenses
  • Acquiring a new business
  • A change of ownership with partner buyout
  • Capital expenditures

 

Loan Structure for Refinancing

  • $5 million limit on 504 portion ($5.5 million for manufacturers)
  • Bank’s loan must be equal to, or greater than, the SBA 504 debenture amount
  • Cash out cannot exceed 20% of the appraised value OR 85% LTV, whichever is less
  • Existing 7a loans can be refinanced in whole or in part

 

Getting Started

It’s important to note that refinancing an SBA 7a loan with a 504 loan can be a complex process.  It’s a good idea to get us involved early so we can assist with determining eligibility and walk you through the application checklist.  For quick reference, download our guide:  Refinancing 7a with SBA 504

 

Why Growth Corp

Small Business Growth Corporation (Growth Corp) is a nonprofit, mission-based lender dedicated exclusively to connecting small businesses with quality expansion capital through administration of the SBA 504 Loan Program. With a commitment to economic development, job creation and the small business sector, Growth Corp is ranked a Top 10 National CDC for SBA 504 loan volume and is Illinois’ largest 504 loan provider.  In fact, Growth Corp’s substantial portfolio ($850+ million) is particularly impressive because every dollar was utilized by Midwest entrepreneurs to open and expand their small businesses.  Contact a member of our expert Lending Team today!