The SBA 504 Refi Program – a 2-Part Series
Part 1: Refi Without Expansion

The SBA 504 Refi product continues to refine its capability. Due to increased interest rates and changes to the program, the SBA 504 Refi has developed into a popular financing alternative for small and medium-sized businesses. This week the focus is Refi Without Expansion, a borrower situation where the loan proceeds do not include funding for real estate improvements or acquisition of equipment assets.

 

How does the SBA 504 Refi Without Expansion benefit a business?

  • Improves cash flow by extending the existing debt’s amortization up to 25 years
  • Secures a below-market, fixed-interest rate
  • Provides access to real estate equity to fund operating expenses or reduce working capital debt

 

Can you refinance an existing SBA loan?

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

 

What are the basic requirements to qualify?

  • The SBA 504 financing is limited to 90% of the market value of the real estate.
  • 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 applicant business must have been in operation for the 2-year period prior to the submission of the application to SBA.
  • 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?

  • Yes, Eligible Business Expenses (EBE) funds can be financed into the 504 loan.
  • EBE funds can be used for operating expenses, including salaries, rent, utilities, inventory, and other business costs that are not capital expenditures.
  • EBE funds can be used to pay off credit cards and lines of credit in the business's name.
  • EBE funds cannot be used for real estate purchases/improvements, equipment/goodwill acquisitions, or personal expenses.

 

Does SBA have another program that allows a refinance to tap into equity for real estate and equipment expansion?

  • Yes, this will be the focus of Part 2 of the series.