August Newsletter

504 Debt Refinancing Changes

On July 29, 2021, the SBA released the new rules for SBA's 504 Debt Refinance Program. These rules, which are effective immediately, were updated for the refinance with expansion and refinance without expansion programs.

Continue reading to find out how the 504 program has changed for each refinance option.

504 Debt Refinance Without Expansion

Borrowers may refinance eligible federally guaranteed debt under the following conditions:

An existing 504 loan may be refinanced if both the Third Party Loan and the 504 loan are being refinanced or the Third Party Loan has been paid in full.
An existing 7(a) loan if we receive confirmation in writing that the present lender is either unwilling or unable to modify the current payment schedule. OR,
If the Third Party Lender is the 7(a) lender, the loan will be eligible only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modify terms.

Qualified Debt now includes debt incurred no less than 6 months prior to the application for refinance - down from 2 years. The debt must be secured by Eligible Fixed Assets for at least 6 months.

Current on all payments due has been removed. However, the refinance cannot involve a creditor in the position to sustain a loss causing a short to SBA of all or part of a potential loss from an existing debt.

Applicant business still must have been in operation for the 2-year period before application.

504 Debt Refinance With Expansion

The amount to be refinance has increased from 50% of the expansion cost to 100%. In order to fully refinance the existing debt, the amount of the expansion must be at least the amount of the debt to be refinanced.

Borrowers may refinance eligible 504 and 7(a) loans.

Applicant must be current on all payments for 12 months before the SBA application date.

For both programs, substantially all (85% or more) of the proceeds of the existing debt had to have been used to acquire an Eligible Fixed Asset(s) and the remaining amount (15% or less) was incurred for the benefit of the small business applicant.

Talk to one our lending professionals on how the debt refinancing program can work for your business customer!