What the New SBA 504 Refinancing Rules Mean for YouBusinesses have long been able to benefit from loans guaranteed through the U.S. Small Business Administration (SBA). These government-backed loans help fund startups or business growth at low interest rates and with more relaxed terms than their conventional counterparts. The SBA 504 loan, in particular, is an ideal choice for businesses looking to fund or refinance major real estate or equipment purchases. Now, with changes to the SBA’s 504 refinancing rules that went into effect last year, even more business owners stand to benefit from a 504 refinance. These rule changes expand the types of debt that small businesses can refinance with a 504 loan, and they’re worth a look for any owner hoping to free up capital or fund new projects right now. Here’s a look at the updates to the SBA’s 504 refinance program and what they could mean for your business.
What Is an SBA 504 Refinance?The SBA/CDC 504 Loan Program has been in place for decades, but it only expanded to permanently offer refinancing options in 2016. The program is a partnership between the SBA and Certified Development Companies (CDCs) — local nonprofit organizations focused on community development. The primary aim of 504 loans is to provide “long-term, fixed-rate financing for major assets, such as land and buildings.” An SBA 504 refinance is structured as follows:
- A private lender finances 50% of the project cost.
- The CDC funds 40% through a second mortgage.
- The business owner contributes at least 10% equity toward the project.
How Have SBA 504 Refinancing Rules Changed?The SBA’s rule changes have altered quite a few aspects of the 504 refinance program, but here are the four most significant ones for small business owners:
- You can now refinance debts that are at least six months old, rather than two years as under the old rules.
- The new rules allow you to refinance up to 100% of your existing debt, compared to only 50% before.
- Businesses can still qualify even if they’re not current on all payments for the loan they hope to refinance for the previous 12 months.
- Other government debt, such as SBA 7(a) loans or existing 504 loans, is now eligible for refinancing under the program.