As small businesses adapt to changing economic conditions, it’s important to explore opportunities for optimizing loan structures. With interest rates on the rise, many small business owners holding adjustable SBA 7(a) loans are now contemplating a shift towards the stability of fixed-rate SBA 504 loans.
Refinancing an SBA 7(a) loan with an SBA 504 loan is a strategy that can bring substantial advantages for business owners. This article will delve into the benefits of this financial maneuver and how it can open up new avenues for growth and financial stability.
1. Lower, Stabilized Interest Rates for Long-Term Savings
Refinancing an SBA 7(a) loan with an SBA 504 loan locks in lower interest rates. SBA 7(a) loans often come with variable rates, which can expose borrowers to unpredictable fluctuations in interest costs. On the contrary, SBA 504 loans offer fixed interest rates, providing stability and predictability over the loan term. By securing a lower fixed rate, business owners can save on interest expenses over time, freeing up capital to reinvest in their businesses or bolstering their financial reserves.
2. Access Cash Trapped in Real Estate
Cash out up to 20% of the appraised property’s value for business expenses (not exceed 85% combined LTV). Cash can be used to pay salaries, inventory, utilities, etc.
3. Enhanced Borrowing Capacity for Growth
A significant advantage of refinancing to an SBA 504 loan is the increased borrowing capacity it offers. SBA 504 loans allow borrowers to finance up to 90% of the total project cost. This boost in borrowing capacity empowers business owners to take on more ambitious projects, expand their operations, or invest in critical equipment without seeking additional external financing. Additionally, there is no maximum on the total project cost. SBA 7a loans have a maximum total project cost of $5 million.
4. Reduced Risk Exposure
SBA 7(a) loans often require abundance of caution liens on other properties, putting their assets at risk in case of loan default. SBA 504 loans do not typically require this abundance of caution liens or require additional collateral other than the property that is being financed.
By refinancing an SBA 7(a) loan into an SBA 504 loan, business owners can mitigate risk exposure and protect their personal assets. This separation of business and personal liabilities enhances financial security and provides peace of mind during challenging times.
5. Capitalizing on Favorable Market Conditions
Timing is essential when refinancing loans, as it allows businesses to capitalize on favorable market conditions. Interest rates and economic circumstances can fluctuate over time, affecting the terms of new loans. Refinancing an SBA 7(a) loan with an SBA 504 loan can be particularly advantageous when interest rates are on the rise, as businesses can lock in favorable rates and secure long-term financial stability.
Eligibility Guidelines
- Almost any owner-occupied property will qualify: minimum 51% owner-occupied and meet all other SBA 504 eligibility guidelines at time of application
- Existing loan to be refinanced must be at least six months old
- At least 75% of existing loan must originally have been used for 504 eligible purposes (such as: the purchase or improvement of fixed assets)
- The refinancing of any federally guaranteed debt (such as 7a or 504 loans) must provide a substantial benefit to the borrower – minimum 10% savings
- Up to 20% of the appraised value can be used for cash out for other business expenses (not exceed 85% combined LTV
- Appraisal is required for funding
Businesses Requirements
- Must be for a for-profit, owner-occupied small business in the U.S.
- Must have been in operation for at least two years
- Must meet all other SBA eligibility requirements
Is Refinancing Your SBA 7(a) Loan with TMC Financing’s SBA 504 Loan the Right Move for Your Business?
Refinancing your SBA 7(a) loan to TMC Financing’s SBA 504 loan can be a strategic move that offers numerous benefits for your business. From lower fixed interest rates to cash out opportunities, TMC Financing’s SBA 504 loan program presents a compelling proposition for small business owners.
If your business meets the eligibility criteria and you are located in Arizona, California, Nevada or Oregon, it’s time to consider approaching TMC Financing to guide you through the refinancing process. As a dedicated provider of specialized financing options for commercial properties, TMC Financing can help you navigate the process and secure the funding your business needs to thrive.
Ready to take your business to the next level? Contact TMC Financing today to learn more about refinancing your SBA 7(a) loan with their SBA 504 loan program and set your business on the path to long-term success.