SBA 504 Refinance - Is the 90% LTV Program Coming Back?

by John King on February 24, 2013

June 13, 2013 - Update

The Creed Act is gaining momentum.  Yesterday the Senate Committee on Small Business and Entrepreneurship led by Senators Mary Landrieu and Jim Risch approved legislation that would bring back the 504 refi program.

The vote is a big step in the process that would lead to the return of the program, but the really big news is that the legislation would make the refinance provision a PERMANENT part of the 504 program.

Updated - March 15, 2013:

The SBA has just announced that they support the return of the refinance provision of the 504 program via the CREED ACT.  The Creed Act would renew the 90% loan to value “temporary” 504 refinance provision allowing many more businesses to re-structure their current financing and access capital while rates are still very low.

It remains to be seen if the legislation will be passed, but this is a big step in the right direction.

New Bill Gives Hope to Small Businesses

It’s way too early to know if a program that was helping a lot of small business owners refinance their commercial property and equipment loans will be coming back, but a new bill that allegedly has bi-partisan support has been introduced.

The legislation is called the The Commercial Real Estate and Economic Development Act (or CREED Act) and it was put forth by Senators Mary Landrieu and Jeanne Shaheen.

504 Refinance Program Expiration

For those who don’t know, the (temporary) 504 refinance program that was introduced a few years ago died an untimely and premature death this past September just as it was gaining traction with lenders and small businesses.

The program allowed business owners to refinance older, higher rate and usually shorter term debt with lower rate, long term debt, but it also allowed business owners to refinance at up to 90% of the appraised value of their buildings or equipment.

90% Loan to Value with Cash Out

The 90% guideline was a crucial component of the program as many business owners who had been unable to refinance conventionally due to lack of equity now had an option.

This new proposal would extend the program for 5 years and it comes at a time when lenders are getting healthy and many small businesses are starting to rebound from the recession.   It could be a huge catalyst for these businesses as having the ability to refinance business debt - both commercial real estate and other debt - could have a dramatic impact on cash flow, further helping their recovery.

Some of the Benefits:

  • Many businesses have maturing loans (and less equity) then they had before and they cannot meet their current lender’s guidelines for new loans or for an extension.  This gives business owners a more flexible option since they can finance all the way up to 90% ltv.
  • Business owners can access equity in their buildings to get working capital and to pay other eligible business expenses.
  • Rates are at or near all time lows.
  • It is a “zero subsidy program” meaning that fees paid by small businesses who get the loans pay for the program.  i.e. This program does not cost the taxpayers.
  • These are low risk loans for lenders making the odds of approval higher than with conventional financing.

Click here for a full rundown of the current refinance provisions as well as the full anticipated guidelines of the new legislation.

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