The SBA 504 loan program can refinance existing real estate and/or equipment debt.
In order for debt to be eligible for refinancing it must meet the following criteria:
- Your business must be in operation for at least 2 years.
- At least 75% of the original loan amount must have been used to purchase or improve owner-occupied commercial real estate or equipment.
- The loan must have been in place for at least 6 months and the final draw must have occurred at least 6 months ago.
- The loan must be secured by eligible fixed assets such as land, real estate, and/or equipment.
- The loan has not been modified (other than renewal on the same terms) in the past 12 months.
- Payments must be current for at least the past 6 months from applying to the SBA.
Highlights
Existing SBA 7a, SBA 504 loans, and other government-guaranteed debt can be refinanced with an SBA 504 loan (some restrictions apply including being able to demonstrate a “substantial benefit” to the current monthly payment).
Multiple qualifying loans can be included in order to consolidate a business’ debt.
For a simple refinance, the amount can be up to 90% of the current appraised value of the fixed assets securing the loan.
Businesses can cash out equity to use toward eligible business expenses such as salaries, rent, utilities, inventory, and pay down accounts payable or lines of credit, among others. For cash-out refinancing, the total amount of the existing debt plus the cash-out amount can be up to 90% of the current appraised value of the fixed assets securing the loan.
Equity in the fixed assets securing the debt can be used toward the borrower’s required contribution.
Examples
Example #1 – Refinance a $100,000 loan used to originally purchase a building, plus a $400,000 loan also secured by the building taken out 8 months ago for building improvements. The current appraised value of the building is $1,000,000.
| Appraised value | $1,000,000 | Bank | $250,000 |
| Qualified debt #1 | $100,000 | SBA 504 | $250,000 |
| Qualified debt #2 | $400,000 | Borrower Equity | $500,000 |
| Equity in property | $500,000 | Total | $1,000,000 |
Example #2 – Refinance a $300,000 SBA 7a loan used to originally purchase a building, plus $200,000 for eligible business expenses. The current appraised value of the building is $1,000,000.
| Appraised value | $1,000,000 | Bank | $250,000 |
| Qualified debt | $300,000 | SBA 504 | $250,000 |
| Eligible expenses | $200,000 | Borrower Equity | $500,000 |
| Equity in property | $500,000 | Total | $1,000,000 |
Debt Refinancing with Expansion
If your primary need for financing is for the acquisition, construction, or improvement of land, building, or equipment, you can include up to 100% of the expansion costs to the project to cover the refinancing of existing eligible debt.
Example
A business wishes to make renovations/improvements to their building and purchase new equipment, plus refinance the current loan on the building with a current balance of $500,000.
| Building renovations | $400,000 | Bank | $500,000 |
| New equipment | $100,000 | SBA 504 | $400,000 |
| Existing debt | $500,000 | Borrower Cash* | $100,000 |
| Total Project | $1,000,000 | Total | $1,000,000 |
*Equity in the building could also be counted as the borrower’s contribution, which would increase the amount of the bank and 504 loans.