On Tuesday, October 11, 2011, SBA expects to publish a major revision to the current 504 temporary debt refinancing regulations. These will be the expected program enhancements that should make this critical program much more useful to many small businesses seeking to refinance their debt or obtain today's extraordinary 504 rates.

While many details will be provided in forthcoming Notices and/or regulations, here are general comments on the program enhancements and highlights:

 

Amount of Third Party Loan and 504 Loan:

The Third Party Loan and 504 Loan will no longer be limited to the outstanding principal balance of the debt being refinanced. This will allow excess equity to be used for the financing of Eligible Business Expenses.

 

Minimum Amount of Third Party Loan:

The Third Party Loan will no longer be based on 50% of the appraised value.  Instead, the project will be based on actual costs and the financing structure will be the same as the regular 504 program.

 

Eligible Business Expenses:

Such expenses may include rent, utilities, inventory or other business obligations. Eligible Business Expenses means expenses incurred, but not paid, prior to the date of the 504 loan application that will come due within 18 months of that date.  Estimates of these expenses are required with the application.

 

Qualified Debt Criteria:

The debt to be refinanced may qualify if the loan that originally financed the Eligible Fixed Assets satisfies the 85/15% use of proceeds test AND the Borrower and CDC provide the debt and lien instruments for the current loan being refinanced.  This will significantly reduce the documentation requirements or "genealogy" of the loan when there has been previous refinancing(s).