SBA 504 Refinance Program

Under the Small Business Jobs Act, the SBA has implemented a temporary program—authorized until Sept. 27, 2012—allowing small businesses to refinance eligible fixed assets in its 504 program without requirement of an expansion, as is the case with typical 504 loans. This program will provide small businesses the opportunity to lock in long-term, stable financing, as well as protect jobs.

These loans are very popular for financing gas stations, self storage buildings, doctor practices, dentist practices, veterinarian practices, medical office buildings, office and warehouses, business loans for all types of businesses.

All standard 504 Loan program guides apply with these key program features added.

Key Features of the SBA 504 Refinance Program

  • Borrowers can finance up to 90 percent of the current appraised property value, or 100 percent of the outstanding principal, whichever is lower, plus 504 eligible refinancing costs.
  • The program is structured like SBA’s traditional 504 loan program: borrowers will work with third-party lending institutions to obtain financing, in a traditional 90% LTV loan.
  • The program, which is completely separate from SBA’s traditional 504 program, is zero-subsidy, requiring no cost to the taxpayer:  It will be funded entirely through additional fees assessed for refinancing projects.
  •  Applicants must demonstrate that their loans are current and that they have successfully made all required payments in the last year.
  • A new, independent appraisal will be required for all projects.
  • Initially, the first mortgage loans on existing 504 projects are not eligible, and “cash out” refinancing are not permitted.  SBA may later revisit these restrictions.  In addition, no government guaranteed loan is eligible for this refinancing program.


Q: How is the temporary Jobs Act Debt Refinance program different from the permanent 504 debt refinance program?

A: In the permanent 504 refinancing program approved under the Recovery Act, the project is required to have an expansion component and the refinanced portion must not exceed 50 percent of the total cost of the expansion. The new, temporary 504 refinancing program does not allow an expansion to be financed and can only be used to refinance existing eligible debt.

Q: What if a small business needs to expand, for example, to purchase equipment or a building?

A: Borrowers who need to expand their businesses may pursue the regular 504 program or 7a financing.

Q: What then are the main criteria to qualify for this temporary program?

A: This program initially targeted businesses that have maturing mortgages and/or balloon payments coming due within the next two years. However, SBA has extended the program to other balloon notes and businesses that can show a substantial improvement in cash flow. SBA is committed to ensuring that all funds go to small businesses that most need the support.

Q: How long must a small business be in operation to be eligible for this loan program?

A: The Small Business Jobs Act states that debt must have been incurred at least two years prior to the application date to be eligible for refinancing under this program. Therefore, a business must have been in operation for at least two years prior to the date SBA receives the loan to be eligible for refinancing.

Q: What if the debt being refinanced includes some proceeds that would not be eligible for the traditional 504 program?

A: As long as a substantial portion (85% or more) of the original loan was used to acquire, construct or improve eligible fixed assets, it would qualify for refinancing under this program.
Since a small business may have refinanced its debt over time, it is possible a small portion of the refinancing may have included a line of credit or short-term assets. The small business may include a limited amount (less than 15%) of project costs that are not fixed assets in order to refinance the existing debt. However, all the proceeds of this debt must have been used for the benefit of the business.

Q: The rules indicate that the loan must have been current.  What documentation must be provided to make this determination?

A: A transcript of loan payments for the last 12 months, indicating the loan has been current for this entire period, is required. Loans deferred for more than 30 days will not be considered current for this purpose. For lending institutions applying to refinance debt originally financed by that institution (“same-institution debt”), a full transcript of the entire history of the loan is required.

Q: Why is there no “cash-out” provision, as allowed for in the Small Business Jobs Act?

A: The Small Business Jobs Act authorizes SBA to provide funding to small businesses for additional business expenses not originally part of the debt being refinanced (the “cash-out” provision). In order to operationalize this program as quickly as possible, however, SBA decided to move forward with the refinancing component of the program while seeking additional input on how best to operate the cash-out provision.

Q: Will the borrower be required to increase its contribution to 15 % or 20% if the fixed asset to be refinanced is a limited or special purpose building?

A: No.