SBA 504 Loan Program Changes: Refinancing Now Possible

In recent months, the Small Business Administration (SBA) has enacted numerous changes to its lending programs in attempts to get credit moving to small businesses. One change which the agency is publicizing today is a permanent change to the SBA 504 loan program. 504 loans finance the purchase or improvement of large scale fixed assets, such as commercial real estate, buildings or equipment. Now, 504 loans can be used to refinance existing loans already taken out on similar purchases or projects.

Previously, we discussed SBA 504 loan basics and the fact that like 7(a) loans, borrower fees for 504 loans have been temporarily eliminated.

Those who will benefit from the change publicized today have already taken out non-SBA loans to do things that would qualify for 504 loans. That typically means loans for the purchase of land, buildings, or equipment, or for improvement projects. The new change would let such borrowers use the SBA 504 program to refinance their debt to far better terms.

Here are the specifics on exactly what types of debt can be refinanced through the 504 program changes:

1. It was taken out to finance purchases or projects eligible for 504 loans;
2. It was backed by fixed assets (i.e. the land or other asset serves as collateral);
3. New financing would offer better terms to the borrower; and
4. The borrower has been current on all payments for one year before refinancing.

• SBA 504 Program (SBA.gov)
• Small businesses, banks, economic developers urge SBA to further boost lending (Albany Business Review)
• SBA Emergency ARC Loans: What Counts as a 'Viable' Small Business? (FindLaw's Free Enterprise)
• Increased SBA Backed Loans (FindLaw's Free Enterprise, March 2009)
• Real Estate Law Overview (provided by Robertson + Lum LLP)