Author: Peggy

504 Debt Refinance Without Expansion (Straight Refinance)

504 REFINANCE IS GREAT FOR

LOAN TO VALUES (LTV)

QUALIFIED DEBT

Accessing cash/working capital
Pending balloon payments
Stretching payments out over a long term loan (up to 25 years)
Consolidating multiple loans
Minimizing out-of -pocket costs (equity in the collateral often fulfills the down payment requirement)
Low, fixed interest rate on 504
Improving cash flow

ELIGIBLE BUSINESSES

Must be a for-profit, owner occupied small business in the U.S.
In operation for at least 24 months
Property being refinanced at least 51% owner-occupied or is long-term equipment

LOAN STRUCTURE

$5 million limit on 504 portion ($5.5 million for manufactures or energy public policy goal)
Appraisal required at time of application
Project cannot involve expansion to the business
Loans for debt refinance without expansion need to be disbursed within 9 months of loan approval

No Cash-out: 90% LTV
Cash-out: 90% LTV
No cap on cash out for Eligible Business Expenses (EBE)
EBEs include salaries, rent, repairs, maintenance, inventory, utilities, other secured debt
Other obligations of the business that were incurred, but not paid, prior to the date of application or that will become due for payment within 18 months after the date of application
EBEs do not include capital expenditures, personal expenses, partner buy outs, business acquisition, etc.
Must still meet all other SBA eligibility guidelines
Appraisal: prefer at application and required for funding
Other assets can be used as collateral for LTV (if no cash-out)
Must still meet all other SBA eligibility guidelines
May consist of two or more loans provided that each loan satisfies the Qualified Debt requirement
Loan must be disbursed within 9 months after loan approval

JOB CREATION

One job for every $90,000 of the debenture
One job for every $140,000 of the debenture for manufacturers or energy public policy goal
Existing FTE jobs can be counted as jobs retained by the refinancing project
Projects are excluded from the job requirement goals if a Public Policy Goal is fulfilled (i.e., minority, woman, or veteran owned business; rural development; etc.)

Must have incurred and be secured by an Eligible Fixed Asset(s) for not less than 6 months prior to date of application with no past dues.
75% or more of the loan proceeds of the original loan were used for 504 eligible purposes
100% incurred for the benfit of the small business seeking the financing
Can be a government-guaranteed loan (7a, 504, USDA) if:
For existing 504 loans, third party loan and 504 must be refinanced in whole or the third party loan must be paid off; existing 7(a) loans may be paid in whole or part
New installment amount attributable to debt being refinanced must be less than the existing installment amount(s)
The CDC notifies the existing CDC or 7(a) lender in writing, within 10 business days of application, advising them that the existing loan is being refinanced

INTEREST RATE & TERMS

Fixed-rate
Fully amortizes over the life of the loan (no balloons)
Real estate– 20, or 25 year term; based on appraisal
Rate locked when debenture is sold
Effective rate for refi without expansion is higher than regular 504 loans due to higher servicing fees; 0.025% for FY’ 2025

504 Debt Refinance With Expansion

504 REFINANCE IS GREAT FOR

KEY POINTS

QUALIFIED DEBT

Refinancing existing qualified debt in conjunction with a project involving acquisition, construction or improvement of land, building, or equipment for use of the small business
Pending balloon payments
Stretching payments out over a long term loan (up to 25 years)
Consolidating multiple loans
Minimizing out-of -pocket costs (equity in the collateral often fulfills the down payment requirement)
Low, fixed interest rate on 504
Improving cash flow

ELIGIBLE BUSINESSES

Must be a for-profit, owner occupied small business in the U.S.
Property being refinanced at least 51% owner-occupied or is long-term equipment

LOAN STRUCTURE

$5 million limit on 504 portion ($5.5 million for manufactures or energy public policy goal)
The debt being refinanced will be added to the expansion cost to establish the total project costs
Appraisal required at time of application

Debt refinance is allowed for up to 100% of the expansion costs of the project (no requirement on age of debt)
No Cash-out option: maximum LTV is 90% of the fair market value of the eligible fixed asset(s)
Borrower has to be current on payments for 12 months prior to the date of application
Refinance must provide a Substantial Benefit to the small business
New installment amounts attributable to the debt being refinanced must be less than the existing installment amount(s)
Prepayment penalties, financing fees, and other financing costs must also be added to the amount being refinanced in calculating the reduction in the new installment payment
Loans with balloon payments meet the substantial benefit test
Loans with seasonal payments meet the test if there was an improvement in the installment when calculated by averaging all payments of the most recent 12 month period
Must still meet all other SBA eligibility guidelines

INTEREST RATE & TERMS

Fixed-rate
Fully amortizes over the life of the loan (no balloons)
Real estate– 20, or 25 year term; based on appraisal
Rate locked when debenture is sold

75% or more of the loan proceeds of the original loan were used for 504 eligible purposes
100% incurred for the benfit of the small business seeking the financing
Can be a government-guaranteed loan (7a, 504, USDA) if:
For existing 504 loans, third party loan and 504 must be refinanced in whole or the third party loan must be paid off; existing 7 (a) loans may be paid in whole or part
The CDC notifies the existing CDC or 7(a) lender in writing, within 10 business days of application, advising them that the existing loan is being refinanced

JOB CREATION

One job for every $90,000 of the debenture
One job for every $140,000 of the debenture for manufacturers or energy public policy goal
Existing FTE jobs can be counted as jobs retained by the refinancing project
Projects are excluded from the job requirement goals if a Public Policy Goal is fulfilled (i.e., minority, woman, or veteran owned business; rural development; etc.)

504 Refinancing Solutions

REFI STRUCTURE EX: STRAIGHT REFI, NO CASH OUT

REFI CHECKLIST:
Copies of current promissory note and recorded mortgage for debt being refinanced
Detailed breakdown of original project costs
Payment transcripts for the prior 12 months
Documentation of equity injection if appraised value of the project assets is not sufficient to meet equity requirements
Real estate appraisal dated within 12 months of the SBA application

CONTACT US:
Judy Roach, President & CEO
jroach@sbcc-ok.com
(918) 584-3638
Jennifer Reagan, VP, Executive Director
jreagan@sbcc-ok.com
(918) 585-5357
www.sbcc-ok.com
(Interest rates are posted on website) monthly)

As-Is Appraised Value = $5,000,000
Existing Debt = $4,400,000
Closing Costs = $100,000
USE OF FUNDS: SOURCE OF FUNDS:
Existing Equity $500,000 Bank 50% $2,500,000
Refinance Existing Debt $4,400,000 SBA 40% $2,000,000
Closing Costs $100,000 Borrower 10% $500,000
Total Project Costs* $5,000,000 Total Sources 100% $5,000,000
*Total Project Costs = Appraised Value of Collateral

REFI STRUCTURE EX: STRAIGHT REFI, CASH OUT

As-Is Appraised Value = $1,500,000
Existing Debt 7(a) = $1,000,000
USE OF FUNDS: SOURCE OF FUNDS:
Existing Equity $150,000 Bank 50% $750,000
Refinance Existing Debt $1,000,000 SBA 40% $600,000
Cash out for EBE* $350,000 Borrower 10% $150,000
Total Project Costs $1,500,000 Total Sources 100% $1,500,000
SBA Requirements: Total Financing = max 90% LTV $1,350,000 90% LTV

REFI STRUCTURE EX: WITH EXPANSION

As-Is Appraised Value = $1,000,000 New Costs $2,000,000
Existing Debt = $700,000
USE OF FUNDS: SOURCE OF FUNDS:
Existing Equity $300,000 Bank 50% $1,500,000
Existing Debt* $700,000 SBA 40% $1,200,000
New Construction $1,400,000 Borrower 10% $300,000
Equipment $300,000 Total Sources 100% $3,000,000
Soft Costs $300,000
Total Project Costs $3,000,000 *Note: 1) Existing debt does not exceed 100% of new costs 2) Is fully added to 504 project before split
SBA Requirements: Total Financing = max 85% LTV $1,275,000 85%
*Cash Out for EBE (eligible business expense) = max 20% LTV $275,000 18.3%