Small businesses looking to expand are now able to refinance existing loans to buy real estate and other fixed assets as a result of permanent changes to the U.S. Small Business Administration’s 504 Certified Development Company loan program.
The changes were authorized in the American Recovery and Reinvestment Act of 2009.
The 504 loan program is administered through 271 Certified Development Companies across the nation. On Wednesday, SBA began implementing the changes by publishing them as a permanent rule in the Federal Register.
The legislation allows 504 program projects to include a limited amount of debt refinancing if there is a business expansion and the debt refinanced does not exceed 50 percent of the projected expansion cost. The following are some conditions under which borrowers will be eligible for refinancing:
• The debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program.
• The existing debt is collateralized by fixed assets.
• The existing debt was incurred for the benefit of the small business.
• The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account.
• The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.
“Lower interest rates mean lower payments and less money going out the door each month in debt repayments. That means more cash on hand to keep their doors open, their employees working and to even expand and create more jobs,” said SBA Administrator Karen Mills.
The permanent changes allow small businesses to restructure eligible debt to help improve their cash flow which, in turn, will enhance their viability and support growth and job creation. The 504 loan program can be used to purchase business real estate or fixed assets, such as heavy equipment or machinery, and expand current development projects.
Mills said the 504 program’s refinancing changes are the latest in several Recovery Act provisions implemented by the SBA in recent weeks. On March 16, the agency temporarily raised to 90 percent the guarantee level on many of its 7(a) program loans and reduced fees on both 7(a) and 504 loans.It also doubled to $5 million the surety bond guarantee level for small businesses competing for construction and service contracts.
Additionally, on June 15, SBA’s American Recovery Capital loans became available for small businesses facing immediate financial hardship.