The US Small Business Administration has made major changes to the regulations on loan qualifications for the SBA 504 program for refinancing existing debt on commercial property and equipment. This is a temporary program set to expire on September 27, 2012.
Economic Development Foundation (EDF) works with the SBA, third-party lenders, and the customer to refinance loans for existing real estate debt. These refinance loans are structured like traditional 504 loans. Typically, a bank or third party lender provides 50% of the project costs, the SBA -through EDF- provides up to 40% of the project cost and the small business borrower must provide equity of at least 10%. This equity may be drawn from the existing asset equity, rather than new cash injection.
A major change in the regulations enables a small business to refinance not only existing debt but more importantly, use excess equity to obtain working capital that can be used for financing of eligible business expenses. Eligible business expenses range from normal upkeep and maintenance such as repaving parking lots, replacing interior flooring and redecorating to purchase of equipment since these would be usual working capital uses. Purchasing a new property, purchasing a new business or buying out a co-owner would not be eligible business expenses. Borrowers will be able to finance up to 90% of the current appraised property value.
Sandy Bloem, EDF president, says, “EDF has been working especially hard to assist struggling small businesses over the past couple years. These much anticipated revised regulations will provide relief to small business owners who are laboring under onerous interest rates or facing maturing debt on their buildings.”