McLean, Virginia (PRESS RELEASE – February 19, 2011) – Starting February 28, 2011, the U.S. Small Business Administration’s (SBA) 504 loan program will begin accepting applications for refinancing of existing qualified real estate debt for small business owners who are facing impending balloon payments before December 31, 2012.

In a recent press release, SBA Administrator Mills pointed out, “The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years. As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs.”

Certified Development Companies, or CDCs, are the SBA’s conduit for providing 504 loans.  CDCs have been anticipating a surge in demand knowing there are many small businesses in their communities that have been waiting for this refinancing option as a way to take advantage of lower interest rates and extend debt that has a maturing balloon payment. The ability to use a government-guaranteed 504 loan to refinance an existing commercial real estate debt was authorized under the Small Business Jobs Act, but it is a temporary program that will expire on September 27, 2012.

SBA 504 refinancing loans will be structured like a traditional 504 loan. A bank or third party lender provides at least 50% of the loan, the SBA – through a CDC –provides up to 40% of the loan and the small business borrower must provide equity of at least 10%. This equity may be drawn from the existing asset valuation, rather than new cash injection.

Borrowers will be able to refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower, plus eligible refinancing costs.  Loan proceeds may not be used for other business expenses, and existing 504 projects and government-guaranteed loans are not eligible to be refinanced. SBA is expected to issue further regulations to fully implement the legislative directive to enable borrowers to use excess real estate equity for working capital in their businesses.

The CDC industry welcomes this new provision and sees it as a very important way to assist business owners across the country, save thousands of jobs and help the economy expand. The National Association of Development Companies (NADCO) – the trade association representing the nation’s CDCs – has been monitoring the release of these new SBA regulations very closely. NADCO President, Chris Crawford, indicated, “We have been receiving at least ten inquires a week since the refinance provision was announced as part of the Small Business Jobs Act in September 2010. Small businesses and banks have been clamoring to take advantage of this new, more affordable refinance option as a means to hold on to critical business properties. In many cases, this will mean saving a thriving business from closure if it could not refinance maturing debt. ”

The new refinance program is only for businesses that can demonstrate that their loans are current and that they have successfully made all required payment over the last twelve months. There will also be a new, independent appraisal required for all projects. But even in the face of these requirements, SBA anticipates as many as 20,000 small businesses will be able to take advantage of these special refinancing loans. SBA has hired over 35 new loan processors to handle the increased workload at their Sacramento Loan Servicing Center.

NADCO Provides a Listing of CDC by States

Eligibility Criteria
• Loan must mature on or before December 31, 2012
• Loan payments current for previous 12 months
• Loan must be at least 2 years old
• 85% of proceeds being refinanced must be 504 eligible
• Cannot refinance 7a or 504 loans
• Up to 90% loan to value (up to 125% with additional collateral)
• Third party loan must be 50% of fair market value and first position
• 504 loan cannot exceed 40% of fair market value and must be second position
• Appraisal must be less than 6 months old
• Debenture must fund within 6 months of SBA approval