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SBA Opens Temporary Refinancing Program to Real Estate Mortgages Maturing after December 2012

SBA Opens Temporary Refinancing Program to Real Estate Mortgages Maturing after December 2012


Release Date: March 29, 2011
Contact: David J. Hall (202) 205-6697
Release Number: 11-22
Internet Address:


WASHINGTON, D.C. –Small business owners with eligible commercial real estate mortgages maturing after Dec. 31, 2012, will be able to secure more stable, long-term financing through the U.S. Small Business Administration’s temporary 504 refinancing program as a result of a change that will be published in The Federal Register by April 6.

In February, SBA implemented a temporary refinancing program enacted under the Small Business Jobs Act of 2010, which allowed small businesses facing maturing commercial real estate mortgages or balloon payments before Dec. 31, 2012, to refinance with an SBA 504 loan. The SBA change will lift the date limitation and will allow more small businesses to secure stable, long-term financing and avoid potential foreclosure on mortgages approved before and during the recession that were based on inflated real estate values.

“With the collapse of the real estate bubble, many small business owners have found themselves unable to refinance as a result of inflated real estate values at the time they took out their mortgage,” SBA Administrator Karen Mills said. “SBA’s temporary 504 refinancing program was first made available to those small businesses with the most immediate need. Today’s step opens this critical assistance to more small businesses, giving them the opportunity to restructure their debt and free up capital that will be essential to keeping their doors open and also their future ability to grow and create jobs.”

To be eligible for the temporary 504 refinancing program, a business must have been in operation for at least two years, the debt to be refinanced must be for owner-occupied real estate and have been incurred no less than two years prior to the date of application and the proceeds used for 504-eligible business expenses, and payments on that debt must be current for the last 12 months.

The refinancing loan is structured like SBA’s traditional 504 loan. Typically, a 504 project includes three elements: a loan (or first mortgage) secured with a senior lien from a private-sector lender covering 50 percent of the project cost, a second mortgage secured with a junior lien from an SBA Certified Development Company (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business borrower.

Borrowers are able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Loan proceeds may not be used for other business expenses. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.

Under the Jobs Act, Congress authorized SBA to approve up to $15 billion in loans under this program ($7.5 billion in both fiscal years 2011 and 2012). Together with the first mortgage, this temporary program will provide up to $33.8 billion of total project financing. Additional fees charged to the borrower will cover the cost of this refinancing program and as a result no loan subsidy will be needed from taxpayer funds. The program is expected to benefit as many as 20,000 businesses.

SBA’s traditional 504 loan program is a long-term financing tool, designed to encourage economic development within a community. A 504 loan provides small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.

With publication in the Federal Register, which is expected by April 6, SBA will begin accepting applications from small business owners with mortgages maturing after Dec. 31, 2012. The program will be in effect through Sept. 27, 2012.



Senate Stuck on SmallBiz Reform Bill – Need Your Support!

The Senate is this close to finally making more capital available to small businesses – but they need a push from US.    (See below for what you can do.)    The Senate was hoping to end debate by yesterday on the Small Business Legislation bill currently under discussion (Small Business and Jobs Creation Bill – H.R. 5297)    However, the vote to end debate and move forward fell two votes short today, meaning the back and forth will continue for now.     As part of the bill, a number of provisions and amendments are being discussed that would help small businesses borrower money, and unlike the American Reinvestment and Recovery Act (ARRA), many such provisions to help small businesses access capital would be cost neutral to the taxpayers.

Two importants loan programs for small business borrowing are the SBA 7a and SBA 504 programs.    One critical change to these programs is to increase the amount businesses can borrow.    For example, the 7a program is capped at $2 million, and it has been capped there for over 6 years.    Raising this would allow SBA loans to help many more businesses AND not cost the gov or taxpayers money.    Additionally, the 504 program is currently allowed for use in refinancing Commercial Real Estate (CRE) only in rare cases.   Primarily, it is a tool for buying and developing property for use in business.    This bill could include a change to allow the 504 program to be used for refinancing CRE – a critical need for many of the country’s businesses facing expiring loans without lenders ready to step up with refinance options.

Help us support small businesses and access to capital for business and property owners – through measures that will be cost neutral or even profitable for the government – by contacting your Senators  in the next 24 hours!   Express your support of this Bill and the associated measures to increase SBA loan limits and expand SBA loan eligibility.     Find your Senator here – Senator List

SBA Help Expiring, Proposals Evaporating…

The SBA had been waiving fees to borrowers and increasing guarantee %’s to lenders.   But the money has run out.    Politicians on both sides of the aisle have proposed extending these benefits at least through 2010, and a number of other potentially beneficial changes were proposed in late 2009 and early 2010.    (Additional proposed changes have included increasing the loan limits for the largest SBA programs – 7a and 504 loans – and allowing the expanded use of 504 loans for commercial real estate refinancing.)

But the money has run out.   The changes from the 2009 economic stimulus bill and the extensions that took them through February have expired.     And the jobs bill that did have extensions and enhancements included within it hit a brick wall late last week when Senate Majority Leader Harry Reid stripped out SBA provisions.      (That bill just hours ago saw strong bipartisan support with a “test-vote” of 62-30. )     The bill pared down costs $15 billion.    Extending the 90% guarantee and fee waivers through 2010 costs only $375 million, so money is not the issue.    Putting the SBA funds back in wouldn’t even be noticed.

Unfortunately, the issue appears to be solely political, as the SBA initiatives appeared to have bipartisan support in the Senate.     Some suggest politicians are holding back, waiting to use the SBA funding as a carrot in a later initiative.     Regardless of the reason, it is extremely unfortunate that government money actually making a difference to small businesses is being held back.    You can’t trace the billions to banks to renewed lending activity, but you can see a dramatic increase in SBA lending interest by banks with the increased government guarantees.

And the waiver of fees, did that make a difference?     Ask John C., who is the owner of a Manhattan restaurant we are now refinancing with an SBA 7a loan.     He was approved a week before the deadline, and therefore he will not have a government guaranty fee on his $1.6 million loan.   If he was approved now for that loan, he would face a fee to the government of roughly $42,000.