Impacted by COVID-19? Special assistance is now available.

SBA 504 Loan Now Allows Refinancing

Raymund Flandez of the Wall Street Journal continues to keep us informed on program changes in SBA financing. The SBA 504 program has recently been changed to allow for refinancing. SBA 504 is a popular fixed asset financing program that is guaranteed and requires a smaller cash injecture from the borrower than normal. Contact the UNF SBDC for program details.

Here is a free self paced training program called Finance Primer:Guide to SBA Loan Guaranty Programs

SBA Tweaks Rules of 504 Program

In its latest effort to help cash-strapped entrepreneurs, the Small Business Administration on Wednesday permanently changed a key loan program so that businesses can refinance if they plan to expand or buy equipment.

Previously, business owners could only take advantage of the SBA’s 504 program when they sought new loans to buy real estate, upgrade machinery and make improvements. Now, borrowers can refinance their existing SBA-backed loans as long as the amount is 50% or less than the total cost of expansion.

The change is designed to help business owners restructure debt under better terms and “improve their cash flow and enhance their viability so that they can grow and create jobs,” said Hayley Matz, an SBA spokeswoman.

For instance, a business owner who already has a $1 million 504 loan could now refinance that to buy $500,000 worth of equipment, Ms. Matz said. The small-business borrower must also create or retain a job for every $65,000 guaranteed by the SBA, a change from $50,000.

Some industry experts, however, doubt that this will help struggling small businesses that need to pay a 504 loan coming due soon. Many aren’t in an expansion mode and so aren’t poised to take advantage of the debt refinance provision.

“Most are struggling and working overtime to figure out how to be able to survive this economy,” says Bob Coleman, publisher of the Coleman Report, a newsletter for SBA lenders.

As of last week, the SBA has approved 3,900 loans under the 504 program since its fiscal year began in October, down 41.5% from the 6,671 loans in the same period a year earlier. Total dollar amount of those loans has dropped 42.5% to $2.28 billion, from $3.97 billion a year ago.

This change is the latest initiative that the SBA has rolled out in the past few months as part of President Obama’s stimulus package. Since mid-February, the agency has reduced fees for its loans and raised the guarantee on most of its 7(a) loans, the SBA’s flagship program, to as much as 90% from 75% to 85%. Last week, it rolled out an emergency-loan program for established businesses that are cash-strapped. Next week, the SBA plans to launch a loan program that would make it easier for car dealers to buy inventory.

“This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it most,” SBA Administrator Karen G. Mills said in a statement. “Lower interest rates mean lower payments and less money going out the door each month in debt repayments.”

« »
SBDC Footer Shadow Background