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How SMBs Can Refinance Existing Debt Through the SBA 504 Loan Program - 504 Capital Corporation
How SMBs Can Refinance Existing Debt Through the SBA 504 Loan Program

How SMBs Can Refinance Existing Debt Through the SBA 504 Loan Program

If you’re familiar with small business lending, then you know that the 504 Refinance Program wasn’t always a permanent part of the SBA 504 Loan Program. The 504 Refinance Program was initially a temporary addition to the program that was created under the Small Business Jobs Act of 2010. It wasn’t until the U.S. Congress passed the Consolidated Appropriations Act of 2016 in mid-December, 2015 that the 504 Refinance Program became a permanent piece of the loan program.

Now that the 504 Refinance Program is permanently in place, the SBA’s total lending authorization is greater than it had been. As things currently stand, the Small Business Administration can approve up to $7.5 billion through the “regular” SBA 504 Loan Program and an additional $7.5 billion through the 504 Debt Refinancing Program, for a total lending authorization of $15 billion.

Two Options For Refinancing 

Eligible businesses have two options for refinancing through the 504 Refinance Program. This first is to refinance existing debt without expansion. This type of transaction is often referred to as a straight refinance. If you exercise this option, you can refinance debt for qualifying capital assets like real estate and equipment. 

With a straight refinance, you can cash out equity, secure a lower interest rate and turn equity into operating capital. Those capabilities can improve your operation’s cash flow and enable you to hire more employees if necessary.

The other option is to refinance with expansion. If you need financing to expand your business by buying real estate, making renovations to your current property or purchasing long-term equipment, you may qualify to refinance existing debt for eligible 504 Loan Program assets while you secure funds for your expansion at the same time. The maximum you can borrow to refinance existing debt is 50 percent of the amount you borrow for your planned expansion project.

If you qualify for an SBA 504 refinance with expansion loan, it can help you consolidate debt and it may extend your loan’s terms. You may also benefit from lower payments on your existing debt when you roll it into a new long-term 504 refinance with expansion loan.

What Businesses Are Eligible for the SBA 504 Refinance Program?

As an SBA Certified Development Company, 504 Capital Corporation helps businesses across several states secure funding through the SBA Loan Program, including money for refinancing. Not every business is eligible for the 504 Refinance Program, however.

To qualify, your business must have been in existence for a minimum of two years. The debt you intend to refinance must be a commercial loan that satisfies certain criteria as well. Your business must also meet the SBA’s size requirements for small businesses. For example, your business must have a tangible net worth of $15 million or less and it has to have an average net income after federal taxes, excluding carry-over losses, of $5 million or less for the prior two fiscal years.

If you’re curious about whether your business is eligible for the SBA 504 Refinance Program, contact our SBA Certified Development Company or visit our 504 Capital Corporation locations in Chesapeake, VA, Silver Springs, MD or Raleigh, NC.

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