At the beginning of October, the Small Business Administration (SBA) announced changes to the Debt Refinance Program that will take effect on November 15, 2024. These changes will streamline the loan application process, expand eligibility criteria, and make it easier for small businesses to access the program.
A Recap of the Two Refinancing Programs:
- Debt Refinancing with Expansion – Small business owners seeking to refinance their existing loans while using loan proceeds to expand their business.
- Debt Refinancing Without Expansion – Small business owners seeking to refinance their existing loans with or without cash out for eligible business expenses.
What are the Key Changes?
- More Flexibility with LTV Limits
The loan-to-value requirement has been raised from 85% to 90% for straight debt refinancing with cash out for Eligible Business Expenses (EBE). - 20% Eligible Business Expense Cap Removed
The limit on cash out for Eligible Business Expenses included within the project, previously 20% of market value, has been removed. Businesses can now refinance up to 90% of the market value of their property and other assets securing the loan with cash out for Eligible Business Expenses, providing them with more borrowing power. - Allowing Certain “Other Secured Debt” To Be Included as An Eligible Business Expense
This change allows “Other Secured Debt” to be considered an Eligible Business Expense. The debt must have been incurred before the 504 loan application and secured by the eligible fixed asset. - Alignment of the “Substantially All” Standard
The term “substantially all” refers to a threshold percentage of the original loan proceeds that must have been used for eligible 504 costs. Before this change, debt refi with expansion required 85% of the original use of proceeds to be eligible for 504 costs, and debt refi without expansion required 75% of the original use of proceeds. Now they are both 75%. - Revised the Substantial Benefit Test
Previously, to refinance an existing government debt, the new loan terms would have to provide at least a 10% reduction in the total cost of the loan compared to the old one. Now, “substantial benefit” means that the new installment amounts due for the refinanced debt must be less than the existing installment amount(s). The percentage has been eliminated.
We are excited about these improvements to the SBA 504 Refinance Program and their positive impact.
For more details regarding the memo and SBA Procedural Notice, please visit the links below: