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SBA 504 Refinance Loan Program Ends Soon

By Marcia Richards Suelzer, MA, JD | July 24, 2012

There are only a few weeks left before a valuable small business loan program ends. If you have an existing commercial loan, you might be able to refinance up 90 percent of the appraised value of the collateral securing that loan using the 504 Refinance Loan program. However, this Small Business Administration program, which was enacted in the fall of 2011, will expire on September 27, 2012.

Act Now

In order to take advantage of this program, your loan must be approved by September 27. In most cases, the time from application to approval is six to eight weeks. Therefore, unless you start the application process by mid-August, you are unlikely to beat the deadline.

How Can Refinancing Help You?

A 504 Loan (whether a traditional loan or a refinancing loan) provides fixed-rate, long-term financing for up to 20 years. The interest rates on SBA loans are generally low. During the first half of 2012, the loan interest rates have ranged from a high of 4.59 percent to a low of 4.23 percent. 

Not only can refinancing provide you with better loan terms, but it can allow you to convert your existing equity into working capital that can be used to meet your operating expenses (salaries, utilities, inventory) or pay down your business line of credit or other obligations.

Work Smart

Unlike traditional 504 Loans, proceeds from 504 Refinancing Loans can be used for operating expenses.

In addition, taking advantage of the 504 Refinance Loan program can allow you to:

  • Consolidate your existing debt (especially valuable if you have balloon and/or high interest rate loans).
  • Reduce fluctuation in your expenses by locking in long-term, stable financing.
  • Avoid refinancing cash drain because the closing costs are built into the transaction.
Warning

You can not use the 504 Refinance Loan program to expand your small business. However, your expansion plans may be eligible for financing under the regular 504 loan program.

Does Your Loan Meet the 504 Refinance Loan Requirements?

To take advantage of the program, you must meet the following requirements:

  • You must have been in business for at least two years. Startups can not take advantage of this refinancing program.
  • The debt to be refinanced must be a commercial loan that is secured by eligible fixed assets (such as your building).
  • The debt—including any prior refinancing—must be at least two years old when you file your refinancing application.
  • You must have been current on your loan for the twelve months before your application.
  • At least 85 percent of the original loan proceeds must have been used for the acquisition, construction or improvement of long-term fixed assets. The remaining proceeds (15 percent or less) must have been used for the benefit of your business. (Proceeds from previous refinancings could have been used for operating expenses without making your loan ineligible.)

How to Apply for Your 504 Refinance Loan

To obtain a 504 Refinance Loan you must work with a Certified Development Company (CDC) that has been approved by the Small Business Administration. CDCs work with the SBA and participating lenders, which are usually banks, to provide small business financing under the 504 Loan program. 

There are more than 260 CDCs nationwide, but each one works only within a specific geographical area. The National Association of Development Companies has a map that lists the CDCs authorized to operate in each state. Most of these companies have websites that provide additional information on 504 Loans as well as their loan processes, which can help you select the best company for your needs. You can also contact your local Small Business Administration office for additional information.

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