When it comes to running a business, debt usually comes with the territory. Sometimes it takes borrowing money to make money, but where many businesses struggle is with the kind of debt they incur. High interest rates and large loan payments can make it harder to turn a profit, slowing your business’s growth. Too much debt can also hurt your ability to borrow, since many banks won’t lend to businesses that have too much debt in the first place.

This is where debt refinancing can help. Specifically, for small businesses in need of relief from high-interest loans, the Small Business Administration’s (SBA) 504 Loan Refinance Program has helped pave the way for economic progress and job growth across the United States. The basic tenants are simple: with an SBA 504 Refinance Loan, business owners can borrow up to 90% of the current appraised value of their property. This works by the private lender (a bank) providing a loan for 50-percent of the total project cost and a Certified Development Company (CDC) providing an SBA-backed loan for 40-percent, thus leaving only 10-percent in upfront equity to the business owner.

Certified Development Companies (CDCs) are non-profit organizations that facilitate the SBA Loan Programs, helping businesses through the entire loan process and ensure the process is streamlined, efficient and stress-less for the business owner. Working directly with the private sector lenders and business owners, CDCs are designated and regulated by the SBA to aid in economic growth in local communities and helping businesses grow and create more jobs.

How do you qualify for an SBA 504 Refinance Loan? What is qualified debt?

To qualify for an SBA 504 Refinance Loan, your business must be a for-profit, US-based business. There are a few other qualifications that a CDC can help you identify to ensure your business is eligible, such as business cash flow, net profit and net worth, and business liquidity.

The qualifications for the SBA 504 Refinance Loan also stipulate that the to-be-refinanced loan(s) be no less than two years old, 85-percent of the loan must have been used to acquire real estate or equipment, business owner must occupy at least 51% of the project real estate, the commercial loan(s) cannot be pre-existing federally-guaranteed loan(s) and it/they must be current for the last 12 months.

The SBA 504 Refinance Loan is open to almost any small businesses that qualifies under the SBA’s size requirements and is available every geographic zip code in the US (including Puerto Rico and the Virgin Islands).

What are interest rates and terms of the SBA 504 Refinance Loan?

The interest rates for SBA 504 Refinance Loans vary, however they are generally much lower than rates found in conventional loans and remain fixed during the life of the loan. The term for an SBA 504 Refinance Loan is 10 or 20 years.

How do lenders/banks work with CDCs?

The CDC will work directly with private sector lenders, making it easier for business owners to work through the process of acquiring an SBA 504 Refinance Loan. Lenders will receive the senior lien covering up to 50-percent of the loan amount, the CDC will facilitate (through the 504 Loan or Refinance) a junior lien up to 40-percent of the loan value.

What can an SBA 504 Refinance Loan be used for?

The SBA 504 Refinance Loan enables borrowers to consolidate multiple commercial loans used for owner-occupied real estate, land,equipment, etc. into a below-market, fixed rate loan. It also has a cash-out option for eligible business expenses up to 85% of the appraised property value to pay for things like rent, salaries, utilities, inventory, or other business operating expenses.

What constitutes the 10-percent that business owners need to put down?

The 10-percent that is required can be cash, existing equity in the asset or equity in additional collateral. With conventional consolidation loans, business owners often have to account for 50-percent equity or cash—not something most small business owners want or can do as it greatly reduces cash flow and business liquidity. Also of note, all closing costs associated with the SBA 504 Refinance Loan can be included in the transaction.

What are the first steps in getting qualified for an SBA 504 Refinance Loan?

Contact your local CDC, commercial real estate broker, banking relationship manager or the SBA department at your business bank.

What other benefits are there in obtaining an SBA 504 Refinance Loan?

• Long-term, below market fixed rates; no balloon payments; rates at historic lows

• Longer loan amortizations, ranging from 20-30 years

• Less impact on business cash flow; retain liquidity for working capital needs

• Stability of long term occupancy costs

• Quick closings (35-40 days on average)

The SBA 504 Refinance Loan is a terrific option for business owners wanting to consolidate high interest, adjustable commercial loans into a fixed rate, long term solution.

Jacky Dilfer is the Executive Director at Business Finance Capital, a Certified Development Company (CDC) located in Downtown Los Angeles. For more information, contact her at jacky@bfcfunding.com or call (213) 999-1481.

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