Refinancing Business Debt Through the SBA 504 Loan Program
The Small Business Administration (SBA) 504 loan program is one of the most advantageous and popular funding options for small business owners that are acquiring commercial real estate and major equipment. What many small business owners and their lenders may not know is that the 504 loan program is also an outstanding option for refinancing eligible business-related debt.
With this facet of the SBA 504 program, small business owners may refinance existing fixed-asset business debt to take advantage of the 504’s longer repayment terms (up to 25 years) and fixed interest rates, while providing access to equity for working capital. As with other 504 loan uses, borrowers can receive up to 90% financing when using a 504 loan to refinance debt.
Here’s how the 504’s debt-refinance option works, including the basics about eligible owners, businesses and expenses, as well as an example of a business that gained tremendous benefits.
SBA 504 debt refinance option basics: Eligible borrowers
Qualifying small businesses can apply for the 504 refinance option if they have existing commercial loans in which at least 85% of the proceeds were used to acquire SBA 504-eligible fixed assets. The qualified debt must have been in place for at least two years prior to applying for the SBA 504 refinance program, with payments on that debt current for the previous 12 months.
Eligible business expenses
The SBA 504 Refinance program also allows loan proceeds to be used to finance up to 18 months of eligible business expenses such as salaries, utilities and inventory, including those already incurred and those for future projections. Total project expenses are capped at $25 million, which provides a lot of flexibility for most small businesses.
Real-world example: Savings of nearly $50,000 each month and $300K in working capital
When the owners of an Upstate New York paper-goods manufacturer recently explored options to refinance existing business debt, their primary purpose was to reduce the monthly payments they owed on a conventional commercial bank loan for existing fixed assets. They also wanted to access equity in the business’s assets to support working capital needs.
Their bank and The 504 Company worked together on the deal, and as a result, with the favorable fixed-rate of interest and repayment terms offered through the SBA’s 504 program, the business owners reduced their monthly payments by nearly $50,000. In addition, they were able to include $300,000 in eligible operating expenses due to existing equity they’d built up in their fixed assets.
Today the business is better positioned to innovate, compete and grow. The refinance provided significant cash flow savings, as well as the ability to create at least 10 full-time equivalent jobs over the next two years.
If you have a client that could benefit from refinancing their existing, qualifying debt through the SBA 504 program, get in touch with us today. Our expert lending team will work with you to find the best solution for your client.
The 504 Company can help with all of your 504 needs
Through The 504 Company, loans of $50,000 to $5.5 million are available for qualified projects. We offer competitive fixed-interest rates and longer repayment terms than most conventional commercial real estate and major equipment loans for purchases and refinancing of these essential small business needs.
We work in partnership with banks and other lenders to support small businesses with loan products that meet a wide range of small business needs. We also provide information, education and resources to help small business owners and their companies grow and succeed.
Contact our loan officers today to learn more.