
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.