(New) “A-” SBA Refinance Program For Businesses Who’ve Returned To Profitability

It is probably not an exaggeration to say that most businesses had a rough couple of years in 2008 and 2009. In fact, many are still reeling.

It is also not an exaggeration to say many business owners are having a tough time refinancing their commercial property and have been extremely frustrated when speaking to their (formally) friendly neighborhood banker, because the bank (if they are lending at all) is generally only looking to fund “easy” loans.

When I say “easy” I basically mean 2 things:

1. a conventional (non-govt guaranteed) bank loan for a strong business at a low loan to value.
2. an SBA or USDA (govt guaranteed) loan for a business that did not have a hiccup over the past few years.

The reality:  Many, many businesses DO NOT fit into either category….but there is a possible solution…

The “A-” 504 Refinance Program

The “A-” 504 Refinance is a program offered to businesses who:

1. need to refinance their commercial real estate or equipment loans
2. have been in business for numerous years
3. have historically done well but “took it on the chin” during the Recession.

The “regular” SBA 504 refinance program is primarily for the refinance of commercial property and “long life” equipment…and (for now) it is only open to those businesses who have a balloon coming due.* it is now open to all SBA-eligible businesses and even allows cash out to finance business expenses.

Good Candidates for “A-” 504 Loan

A good candidate for this loan would be a business that might have showed a loss from 2008 to 2010, but is now profitable in 2011 and is trending in the right direction.

A good example of an industry with many businesses who fit this description would be the hotel industry as 2008 and 2009 were fairly brutal for many hoteliers, but many hotels have now rebounded and may fit this program.

Click here for more info on SBA Hotel Loans.

Caveats & Qualifying

The SBA 504 refinance program was recently tweaked (October 2011) and is now easier to qualify for since the SBA is now allowing lenders to refinance loans where business owners have a lot of equity and you can (technically) get cash out for business expenses.  See this post for more info: SBA Cash Out Refinance.  The even better news is that the loans are available up to 90% loan to value with roughly half of the financing on a “below market” 20 year fixed rate – currently approx 5.0% (December 2011).

A typical 504 refinance of the regular/easy variety might be structured with a 5 year fixed rate first mortgage and a 25 year amortization at approx 5% to 6%.

The A- program carries a higher interest rate for the first mortgage rate, but the second is the same rate as is available for a regular loan.  The rates on the first could be as good as 6.5% on a 5 year fixed (higher for the more marginal transactions) or they could also be pegged to Prime – typically in the Prime + 2% to 3% range.  (Prime is currently 3.25% so this is actually a pretty good deal).

Is it perfect?  No.

Is it a solution? Absolutely.

Once you’ve put together a few good years you should be able to refinance out of the first mortgage (if it makes sense to do so) and “re-subordinate” the low fixed-rate second.

Other Caveats:

1. It is tough to do smaller loans (under $500K) with the A- program.
2. The 504 program technically has no maximum loan amount, but anything north of $12 million could be very difficult.
3. You must meet the SBA 504 Refinance Guidelines – for a full rundown re: eligibility, click here.

Assisted Living Facility Refinance and Senior Care

In addition to hotels, Assisted Living Facilities are a target market for this program and the program can also be used for acquisitions.  (Construction is not currently an option for the A- program, but it is possible for “easy” deals).

If your business is on the rebound and you need cash, you might also look into the SBA 7a program which allows refinancing of real estate and equipment as well as business debt consolidation and working capital.  The 7a is available for loans up to $5 million.  Click here for more info on the SBA 7a program.