The New SBA 504 “Cash Out” Refinance
The SBA 504 refinance program finally received a much needed boost this month when SBA decided to let business owners tap the equity in their buildings to pay for business expenses.
They effectively created a “Cash Out Refinance” for business expenses/expansion because a refinance can now include expenses incurred by a business in the past AND expenses “to be incurred” in the next 18 months.
This update to the guidelines was part of the original legislation but had not been worked into the program until now. The update also includes more attractive guidelines for refinancing properties with a lot of equity.
Low Loan to Value Loans Can Now Be Refinanced
Prior to this recent change, it was difficult to refinance a property where the business owner had a lot of equity because the original guidelines said that the first mortgage had to be 50% of the appraised value and you could only refinance what was owed on the property, so in this case there was little to no value in structuring a refinance as a 504.
Now however, the new guidelines state that the existing debt can be split between a new first mortgage and the SBA 504 second mortgage which puts the new first mortgage lender at a much lower loan to value (25% to 50%) and removes a lot of the risk for the lender.
What does it mean?
It means that business owners with verifiable equity in a building can now put that equity to good use in their businesses.
What can be financed?
Business expenses like rent, utilities, salaries, inventory, (paying off/consolidating) an existing Line of Credit.
How can this help?
A business owner can “recoup” money spent in the past AND/OR they can now finance some of their future growth with excellent long term financing of 20 to 25 years.
For more info: SBA 504 Refinance Guidelines
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