SBA 504 Refinance with Expansion

504 Projects with expansion may include debt refinancing.  This program is ideal for companies putting on an addition or buying a new piece of machinery or equipment.  We often find that there is an opportunity to use existing building equity as a down payment as well.

Any amount of existing indebtedness that does not exceed 100% of the cost of the expansion may be refinanced. The debt being refinanced will be added to the expansion cost to establish the total project costs if all the conditions discussed below are met. “Expansion” includes any Project that involves the acquisition, construction, or improvement of land, building, or equipment for use by the borrower.

For more detailed information or to get a cost estimate, please call our office:  (616) 459-4825.


  • A company is doing an expansion project of $1 million
  • They have an underlying debt of $400,000 on the existing building (because expansion costs are $1,000,000 they could refinance up to $1,000,000, but in this case they only need to refinance $400,000)
  • The total financing needed is $1.4 million
  • Existing business and multi-purpose property; therefore, they are eligible for 50/40/10
  • The project structure is determined by “as is” and “as complete” values.


  • Uses:
  • $1,000,000   Expansion Costs
    $   400,000   Existing Debt
    $  155,556    Land Equity
  • $1,555,556   Total Project


  • Sources:
  • $    777,778   Third Party Lender (50%)
    $    622,222   SBA 504 (40%)
    $    155,556   Equity (10%)
  • $1,555,556   Total Project

  • *Assumptions – “As Is” Appraised value = $600,000 and the “As Complete” value = $1,555,556
  • *Appraisal must be submitted with refinance application to establish equity

SBA 504 Refinance Program Without Expansion

Refinancing commercial real estate debt and equipment is now a permanent feature of the SBA 504 Loan Program and can help small businesses take advantage of below-market, fixed interest rates.  This program is available for up to 90 percent of the appraised value of the property and multiple properties can be refinanced.  Cash can be taken out to meet eligible business operating expenses up to 85 percent of the property’s appraised value.

Below are some of the program highlights followed by some examples.

Eligibility Guidelines:

  • The Refinancing Project must include “Qualified Debt” (defined below). In addition, the Refinancing Project may include Eligible Business Expenses (defined below) as well.  In addition, the amount of the Refinancing Project is subject to the Loan-to-Value Limitations described below.
  •  Qualified Debt – means a commercial loan where substantially all (85% or more) of the proceeds were used to acquire an Eligible Fixed Asset.
  • The loan to be refinanced must be at least 6 months old;
  • If the debt is being refinanced by a new institution, the debt must remain in place with the existing institution until after the SBA approval/authorization has been issued.  If the new institution refinances the loan prior to SBA’s approval/authorization (even on an interim basis), the debt will not be eligible to be refinanced until 6 months after the final advance was made;
  • The “Qualified Debt” being refinanced must not shift any risk to the SBA;
  • The business must be operating for 2 or more years prior to the date of application;
  • An appraisal is not required to submit refinance application, but will be a condition of funding;
  • A business must be at 51% occupancy at the time of application submission.
  • “Eligible Business Expenses” are limited to the operating expenses of the business that were incurred but not paid prior to the date of application or that will become due for payment within 18 months after the date of application. These expenses may include salaries, rent, utilities, inventory, and other operating expenses of the business. Personal debt is not included as an Eligible Business Expense, except credit card debt may be included if the credit card is issued in the name of the small business and the Applicant certifies that the credit card debt being refinanced was incurred exclusively for business-related purposes.
  • Federally guaranteed debt is now eligible to be refinanced if it meets the definition of a “Qualified Debt”.  This means 504 loans and some 7(a) loans may now be eligible.

Loan to Value:

  • For projects that refinance only Qualified Debt, the maximum loan to value of the Refinancing Project allowed is 90%.
  • For projects when the amount of Qualified Debt being refinanced is more than 90 percent of the value of the Eligible Fixed Asset(s) securing the Qualified Debt, the Borrower must provide additional cash or other fixed asset collateral acceptable to SBA so as not to exceed a 90% loan to value of the Refinancing Project.
  • For any projects that include the financing of Eligible Business Expenses, a maximum 85% loan to value of the Refinancing Project will apply, and the Eligible Business Expenses portion of the Project may not exceed 20% of the value of the Eligible Fixed Asset(s) securing the Qualified Debt. (Additional fixed assets may not be added if any Eligible Business Expenses are being financed.)

Borrower Benefits:

  • Up to 90% financing;
  • Longer Loan Term— Up to 25 years;
  • Fixed Interest Rate for the entire term of the loan

Lender Benefits:

  • Minimize risk—banks can limit their exposure to 50% of the total 504 loan;
  • Free up client’s capital;
  • Combined LTV (1st and 2nd mortgage) up to 90%.

Example 1:

    • Refinance $100,000 existing commercial mortgage originally used to purchase owner-occupied real estate (borrowed 5 years ago)
    • Second mortgage totaling $400,000 borrowed 8 months ago for property renovations
    • Property appraised at $1,000,000


      • Structure:
        $1,000,000   Appraised Value of Property
        $  100,000    Existing Mortgage (commercial building)
      • $  400,000    Property Renovations$  500,000    Total Loan Proceeds
      • Sources:
      • $  250,000     Third Party Lender
        $  250,000     SBA 504
        $  500,000     Borrower Equity Contribution
      • $1,000,000    Total Project


Example 2:

    • Refinance $300,000 existing 7(a) real estate loan plus $200,000 for Eligible Business Expenses.
    • Property appraised at $1,000,000
      • Structure:
        $1,000,000   Appraised Value of Property
        $  300,000    7(a) Loan (equipment)
      • $  200,000    Eligible Business Expenses
      • $  500,000    Total Loan Proceeds


      • Sources:
      • $  250,000     Third Party Lender
        $  250,000     SBA 504
      • $  500,000     Borrower Equity Conribution