SBA 504 Debt Refinance: A Plan for Recovery Post-COVID-19

image of scrabble tiles saying refinanceAs small businesses are planning beyond COVID-19, the SBA 504 Debt Refinance program serves as a great tool to reduce costs, pull cash out for future expenses and fixed interest rates to manage long-term expenses.

The SBA 504 Debt Refinance program is a public-private partnership that allows small businesses to refinance existing conventional loans, hard money or seller carry notes. The loan to be refinanced must have a two-year maturity and must have been used to acquire commercial real estate, equipment and to make tenant improvements.

How the Debt Refinance Program Works

The SBA non-profit lender partners with a local bank, credit union or non-bank lender to refinance the conventional, seller carry or hard money loan based on the appraised value of the building or equipment. The equity remains in the building or equipment and the refinance loan is provided based on 85 or 90% Loan-to-Value. The SBA 504 interest rate is fixed for 25 years and today’s rate is 2.88%. The business may pull out cash for eligible business expenses for the future 18 months up to 20% of the appraisal value of the building or equipment.

The SBA 504 Debt Refinance loan may be used to complement the Payroll Protection Program or the Economic Injury Disaster Loan (EIDL) to provide long-term benefits for the small business owner, so they may plan for recovery following COVID19.

As noted in the CARES ACT, small business owners who complete new SBA loans, including the SBA 504 Debt Refinance loan after March 28, 2020, will receive six months of debt relief following the loan funding.

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