by Derek Ezovski
February 17, 2011 11:40 A
After much anticipation, on February 17, 2011, the Small Business Administration announced the details of the 504 Debt Refinancing program. While the use of the program is meant to help refinance loans that may be having a difficult time being refinanced by traditional lenders, there is an initial restriction limiting eligible loans to those CRE loans that are due to expire on or before December 31, 2012. Any loans expiring after this will not initially be eligible for the program. Some of the other highlights are:
- The loan being refinanced must be:
- Current, without payment deferral or more than 30 days past due, for one year prior to date of application;
- Incurred not less than two years prior to application;
- Borrower must have been in business two years prior to application;
- Substantially all (85%) or more of the proceeds of the loan being refinanced must have been used for SBA 504 eligible purposes;
- Maturity must be on or before December 31, 2012.
- The loan structure must be:
- First mortgage - not less than 50%;
- SBA 504 Loan - not more than 40%;
- Borrowers equity - not less than 10% (may be satisfied by the project property or other fixed assets acceptable to SBA as collateral);
- Loan may not exceed the lesser of 90% of the fair market value of the fixed assets securing the loan or the debt being refinanced; and
- No jobs creation requirement.
- Other noteworthy items:
- If the amount of refinance is not sufficient to repay debt, lender may 1) forgive the balance; 2) accept payment from the borrower for all or a portion of the deficiency; or 3) accept a new note which will be subordinate to the liens securing the refinance and a three-year standby requirement; and
- No refinance of loans which are currently part of an existing SBA 504 Project or are subject to an existing federal guaranty.
We have had numerous conversations with the SBA, SBA lenders and CDCs and are happy to assist with questions or concerns.
504DebtRefi - SBA Template.pptx (191.13 kb)