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SBA help for repaying business mortgages returns

-Pat Brown-Dixon is the administrator for the Small Business Administration's Region VII and oversees SBA programs and services for the states of Iowa, Kansas, Missouri and Nebraska.

Last month, the U.S. Small Business Administration regained, on a permanent basis, a powerful lending program that will help continue America’s recovery from the great recession of 2008!

The SBA’s 504 Refinance Program was very popular, but it was only a pilot lending tool under the Small Business Jobs Act of 2010. As such, it began in October 2011 and expired in September 2012. Its purpose was to provide extended capital to help small businesses pay off nongovernmental commercial mortgage loans.

I recently met a small business owner who had just been able to get property refinanced under this loan program before it expired in 2012, and who was very happy about it.

The program had a good repayment history and was used for small businesses ready to expand or save jobs but who needed to extend commercial mortgage payments in order to do so. The SBA asked Congress to extend the pilot, and now that they have, and President Obama has signed it into law, it has become a permanent part of our 504 loan program.

The SBA started processing applications on June 24.

One of the requirements of the 504 Loan Program is that the small business borrower must create or retain jobs in the community or meet a community development or public policy goal. Application is made through community Certified Development Companies (CDCs), nonprofits set up to spur community development. A 504 refinancing project has three components:

  • A loan secured with a junior lien from the CDC covering up to 40 percent of the cost, and backed by a 100 percent SBA-guaranteed debenture.
  • A direct commercial loan from the private sector covering the amount covered by the debenture on the project and secured by a senior lien.
  • A contribution of at least 10 percent equity from the borrowing business.

The program offers loans of up to $5 million.

Some rules do apply for borrowers who choose to refinance their existing mortgage with the 504 Loan Refinance program.

1. The commercial mortgage/deed of trust debt to be refinanced must be at least two years old.

2. The loan (or loans – the package could comprise more than one eligible loan) being refinanced must not have any late payments in the previous 12 months, and evidence of that must be presented.

3. The property financed by the original loan must be a minimum 51 percent owner-occupied and meet all other eligibility requirements of the SBA 504 program.

4. The loan program is for refinance-only projects whose maximum LTV (loan to value ratio) is 90 percent.

5. Cash-out refinancing is permitted to cover most eligible business operating expenses.

6. Only conventionally financed commercial mortgages/deeds of trust are eligible. Existing "government backed" loans, such as 504's, 7(a)'s or USDA loans, cannot be refinanced under this new program.

If your small business could benefit and grow from getting out from under a previous mortgage with high interest or short terms, the SBA’s 504 Refinance Program might be just what you need to put that second wind under your small business sail.

For more information, or to get the process started, go to this link and select “Iowa” to find your local Certified Development Company. You can also contact the SBA Branch Office in Cedar Rapids at (319) 362-6405. They can provide assistance and information about our other loan guarantee programs, as well.


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