The SBA 504 Refinance Program
 
On February 17, 2009, the American Recovery and Reinvestment Act of 2009, P.L. 111 5, was signed into law.  This Act changes the Small Business Investment Act (SBI Act) to permit debt refinancing under certain circumstances as part of the 504 Certified Development Company (CDC) Loan Program.  SBA has amended its regulations to implement the new law.  [See Federal Register: June 23, 2009 (Volume 74, Number 119). 
 
The debt refinancing authorized by the Recovery Act is available for loan applications received by SBA on or after June 23, 2009, the effective date of the regulations.  In addition, applications received or loans approved prior to that date may be modified to include debt refinancing provided that the related debenture has not been funded. 
 
Some of the highlights of the new program include:

• The debt being refinanced must have been originally incurred to acquire land, construct a building or to purchase capital equipment. The assets acquired must be eligible for financing under the 504 program.
• The Project must involve the expansion of a small business applicant, any amount of existing indebtedness that does not exceed 50 percent of the cost of the expansion may be refinanced. The debt being refinanced will be added to the expansion cost to establish the total Project costs.
• “Expansion” is defined as any Project that involves the acquisition, construction or improvement of land, building or equipment for the use by the small business applicant.
• An existing 7(a) loan may be refinanced in whole or part, but only if the CDC has provided verification that the present lender is either unwilling or unable to modify the current payment schedule.
• The debt being refinanced does not need to be for assets at the same location or for the same type of property as the project being financed as long as the operation at the other location has the same NAICS code as the operation at the Project location.
• Cost essential to the refinancing, such as prepayment penalties, financing fees or other refinancing costs, required by the original terms of the debt instrument, may be included in the debt refinance portion of a Project.
• The refinance must provide a substantial benefit to the borrower. “Substantial Benefit” is defined as the portion of the new installment amount attributable to the debt being refinanced must be at least 10 percent less than the existing installment amount.
• The borrower must be current on all payment due on the existing debt for not less than 1 year preceding the date of the refinance.

This change is a permanent change to the regulation which will 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.
 
Excelsion Mortgage will entertain any loan which follows these new guidelines; but, you are encouraged to discuss the project with your CDC representative to ensure the refinance meets all the conditions as outlined in the Small Business Investment Act revision.

Please call us at 888-578-5441 to inquire about this new and exciting change to the 504(b) lending program.