New regulations, effective November 15, 2024, will make SBA 504 Refinance loans more accessible to small businesses by updating eligibility criteria and refining previous requirements.
Here’s a glance at what’s changing:
Increased Loan-to-Value: Now up to 90% for debt refinancing without expansion, including cash out for Eligible Business Expenses (like working capital).
No Cap on Eligible Business Expenses: The 20% limit on Eligible Business Expenses (EBE) has been removed, providing greater flexibility.
Revised 10% Substantial Benefit Test: Now, any savings on the proposed new payments is sufficient for refinancing other government debt.
Expanded Eligible Business Expenses: Certain “other secured debts” now qualify as Eligible Business Expenses in 504 refinancing without expansion.
Flexible Asset Use Requirements: Only 75% of the original loan needs to have been used for Eligible Fixed Assets for both 504 refinancing programs.
These changes can help you grow your business with lower debt burden and improved cash flow.
Recap of Previous SBA 504 Refinance Updates from 2023
Businesses can qualify for the SBA 504 Refinance Program when 75 percent of the original loan was used for 504 eligible assets (the previous requirement for cash-out projects was 85%).
No need to wait 6 months to avoid a personal guarantee
A stronger guarantor can be substituted for a weaker one – allows for familial guarantees to strengthen the cash flow of a transaction.
If more than one owner, only the 20% owners up to 51% of the ownership is required to guarantee – no social security numbers or data is required to be collected from the minority ownership
The SBA will no longer require a letter from the existing lender, streamlining and simplifying the refinance process. (Note: when the loan has been submitted to the SBA for approval, the existing lender must be notified within 10 business days.)
Simplification of Affiliation rules
No more Franchise Directory
Reduced factors for determining creditworthiness
Character Clearances
Businesses can qualify for the SBA 504 Refinance Program when 75 percent of the original loan was used for 504 eligible assets (the previous requirement was 85 percent).
Procedural Changes
The SBA will no longer require permission from the original lender, streamlining and simplifying the refinance process.
To find out if refinancing with the SBA 504 Refinance Program makes sense for you and your business, get in touch with us today.