The Small Business Administration (SBA) will allow more businesses to refinance their commercial real estate mortgages through its 504 loan program. The SBA initially restricted this new refinancing option to small businesses that faced balloon payments on their mortgages before December 31, 2012. Beginning April 6, however, it will open the 504 refinancing option to businesses with balloon payments due after that date.
“With the collapse of the real estate bubble, many small business owners have found themselves unable to refinance as a result of inflated real estate values at the time they took out their mortgage,” SBA Administrator Karen Mills said. “SBA’s temporary 504 refinancing program was first made available to those small businesses with the most immediate need. Today’s step opens this critical assistance to more small businesses, giving them the opportunity to restructure their debt and free capital that will be essential to keeping their doors open and also their future ability to grow and create jobs.”
The Small Business Jobs Act, which was enacted last September, allowed the 504 program to be used to refinance existing loans on owner-occupied commercial real estate through September 2012. To be eligible for refinancing, the mortgage must be at least two years old and the business must be current on its payments for the past 12 months. Borrowers can refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower.
The SBA’s 504 loans are used to finance fixed assets, primarily real estate. Typically, a 504 project includes a first mortgage from a private second lender that covers 50% of the cost, an SBA-guaranteed second mortgage from a certified development company that covers 40% of the cost, and 10% equity from the small business borrower.