June 26, 2009

Changes to SBA 504 loan allows refinancing current debt

Through the recently announced American Recovery & Reinvestment Act of 2009, the SBA has just announced changes to the standard SBA 504 loan program that will allow businesses to refinance high-interest-rate debt. Here are the details:

Debt Refinancing: Legislation allows 504 program projects to include a limited amount of debt refinancing if there is a business expansion and the debt refinanced does not exceed 50 percent of the projected cost of the expansion. “Expansion” includes any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business. The following are some of the conditions under which borrowers will be eligible for refinancing:

• The debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program.
• The existing debt is collateralized by fixed assets.
• The existing debt was incurred for the benefit of the small business.
• The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account.
• The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.

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