Refinancing Your Commercial Real Estate Loan With an SBA 504 Loan

If you are a business owner, you should assess your needs carefully before seeking refinancing, so that you can target a structure that’s right for you. Is a cash-out option necessary? Will switching from a variable to a fixed rate provide a more stable financial future? Is a balloon payment looming on the horizon? Answering and prioritizing these questions will give focus to your search and help you understand the size and conditions of the loan you need.

The Small Business Association’s 504 refinance loan can be tailored to a variety of needs. Business owners faced with high-interest mortgages or upcoming balloon payments can greatly benefit from this opportunity to ease their financial burden. Additionally, those who took out loans prior to 2008 may find that changing requirements have made refinancing more challenging. In particular, they may not easily find the volume of crediting that they need. In this light, the SBA’s generous underwriting and the 504 refinance loan’s long terms look especially inviting.

The process can seem tricky if you approach it yourself, since it requires both an understanding how the 504 refinance loan works and also a solid grasp of what you need to get started. However, with an experienced Certified Development Company (CDC) to guide you through the process, every business owner should feel empowered to pursue this option.

How the 504 Refinance Loan Works

A 504 refinance loan is set up in the same way as the standard 504: It offers low, fixed rates on loans with 10 – or 20-year terms that are fully amortized. As of May 2017, the rates are 4.66% for 20 years and 4.49% for 10 years. A commercial bank provides a 1st mortgage loan and the SBA through a CDC provides a second mortgage up to 90%. As the borrower, you will have to contribute at least 10% equity as a down payment, which is often covered by the equity from the property itself. If that’s not possible, cash or other assets can be used.

You can refinance up to 90% of the current appraised value of the property. If eligible business expenses are being refinanced along with property, the maximum proportion is 85%. Another option available is cashing out up to 25% of the property’s value. In other words, you may be able to use up to 25% of the building’s value for business expenses, such as operating costs, employee wages and inventory.

Are You Eligible for a 504 Refinance Loan?

Since eligibility requirements are the same as for the standard 504 loan, most owner-occupied properties qualify for a 504 refinance loan. However, if you’re looking to start the application process on your own, there are some basic requirements to take into consideration.

For example, at least 85% of the initial loan or loans must have been used for 504-eligible purposes, and the loans have to be at least two years old. If you have had previous rounds of refinancing, the latest loans should be at least two years old. Keep in mind too that the initial loan(s) cannot have a government guarantee. You cannot refinance SBA loans (or USDA loans) with an SBA loan.

If all of this seems a bit confusing, don’t worry. You can still benefit from the savings the 504 refinance loan offers without the stress of navigating all of this yourself. There are Certified Development Companies (CDCs) that can help you take advantage of this opportunity and guide you from prequalification to final payment.

TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider, and has been assisting business owners for 35 years. Whether you are well-versed in business loans or are just learning about the possibility of extra help, contact a TMC loan expert to find out more about 504 refinancing and to receive a customized refinance proposal for your property. 

Barbara Morrison

Barbara Morrison

Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison