In December 2015, Congress approved a change to the SBA 504 program to allow refinanced properties to be eligible for the program. Prior to the change, the program was available for purchase transactions only. The summary of the rules at time of approval in December were as follows:
- The commercial loan(s) to be refinanced must be at least two years old. It can be more than one loan as long as they are secured to the same eligible fixed asset.
- The loan(s) must be current on all payments due in the previous 12 months and evidence of this must be presented.
- The business must be operating for at least two years with no ownership changes.
- All SBA 504 program eligibility requirements, including a 51% owner-occupancy requirement, must be met.
- For refinance-only projects, the maximum loan-to-value is 90%. Cash out for eligible working capital has lower loan-to-value limits.
- Cash-out refinancing to cover eligible business operating expenses is permitted, but there are certain restrictions.
- Existing SBA and USDA loans are not eligible to be refinanced under this program.
In November, improvements were made to the refinance program to increase the loan-to-value limitation for certain “cash-out” eligible expenses from 75% to 85%. In addition, minor changes in ownership over the prior two years are now allowed.
“The SBA 504 program crosses over two asset classes that we currently finance in CMBS, namely hospitality and self-storage,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “Historically we have been very active in hospitality refinances, completing over 400 hotel loans in CMBS and 504, and we are actively increasing our self-storage activity. The bulk of our transactions is cash-out refinancings. With a push-back of the amount of cash out allowed in CMBS by investors, we will be presenting the 504 program to our clients as an alternative when they qualify to get the best cash-out deal available for our hospitality and self-storage clients.”