The SBA 504 Refi Program – a 2-Part Series Part 2: Refi With Expansion

Recently, we published an article to spark interest in the SBA 504 Refi product. In Part 1 of this two-part series, we address the classic refinance situation that may or may not involve pulling equity out to provide funding for future business expenses. In the SBA world, this is known as Refi Without Expansion.

This article addresses another common situation involving real estate refinancing, known as the Refi With Expansion. This program has also been refined in the past few years, helping more small- and medium-sized businesses grow and prosper.

How does the SBA 504 Refi With Expansion benefit a business?

• It accesses existing equity to help expand the business's real estate or equipment assets without diminishing working capital reserves.
• It also improves cash flow by extending the existing debt’s amortization to 25 years and securing a below-market, fixed interest rate.

Can you refinance an existing SBA loan?

• Yes, both conventional and SBA loans can be refinanced.

What are the basic requirements to qualify?

• The request must involve the acquisition, construction, or improvement of land, renovation of an existing building, or ground-up construction of a new building for the business's use.
• The amount of the refinanced note cannot exceed the funds needed for real estate and equipment.
• The SBA 504 financing is limited to 90% of the market value of the real estate and equipment collateral.
• At least 75% of the original debt must have funded 504-eligible real estate or equipment assets.
• The original debt may not have included funding for personal expenses or non-business investments.
• The portion of the new installment payment amount attributed to the refinanced debt must be less than the existing installment amount.
• The qualified debt must be an eligible commercial loan incurred at least six months before the date of application.
• All other standard SBA eligibility requirements apply.

Is the maximum LTV for special-purpose real estate the same as general-purpose real estate?

• Yes, currently, the maximum LTV for special-purpose real estate is also 90%. However, this is subject to change based on economic conditions.

Can a business pull out cash from the real estate if there is enough equity?

• No, that is not possible under this program.
• Working capital for business operations, also called Eligible Business Expenses (EBE) by the SBA, can only be funded using the Refi Without Expansion program previously discussed in part 1 of the series.
• In other words, the SBA will either allow the business to withdraw cash or invest in the building, but not both, on the same loan.

In addition to the typical credit application documents such as tax returns and financial statements, are there any other essential items necessary to apply for either of SBA’s refinance programs?

• Yes, the lender must order an appraisal of the real estate at the time of the application because the loan structure will be determined based on the value of the project “as is.”