SBA 504 Debt Refinance

Example Loan Structure Scenarios

Small business owners are now able to refinance conventional commercial real estate loans at below-market, fixed interest rates for a 20-year term through TMC’s SBA 504 refinance program. SBA refinance 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 75 percent of the property’s appraised value.

Learn more about the qualifications for SBA 504 refinance here.

Below are some examples of how an SBA refinance loan can be structured to benefit small business owners.

Example 1: Refinance a conventional loan

Borrower seeks to refinance an existing $1,000,000 commercial real estate loan. The property appraises at $2 million.

Acceptable SBA Refinance Loan Structure
SBA 504 debt refinance example 1
Comments: Refinancing a conventional mortgage can allow business owners to take advantage of the favorable below-market, long-term fixed rates of the SBA 504 refinance loan. The new third-party loan must be equal to or greater to the SBA 504 debenture amount, at least $500,000 in this example.

Example 2: Refinance multiple conventional loans

Borrower seeks to refinance an existing $200,000 mortgage used to purchase the property plus an $800,000 second mortgage borrowed five years ago for eligible SBA 504 business purposes. The property appraises at $2 million.

Acceptable SBA Refinance Loan Structure
SBA 504 debt refinance example 2
Comments: Both the original first mortgage and the existing second mortgage can be combined under the favorable terms of the SBA 504 refinance loan. The new third-party loan must be equal to or greater to the SBA 504 debenture amount, at least $500,000 in this example.

Example 3: Cash-out for eligible business expenses*

Borrower seeks to refinance $600,000 in existing qualified commercial real estate debt + $800,000 for unsecured loan obligations and business operating expenses. Property appraises at $2 million.

Acceptable SBA Refinance Loan Structure
SBA 504 debt refinance example 3

Comments: The SBA refinance program can be used for both restructuring qualified debt and accessing equity for business operating expenses. While the total refinance request does not exceed 75% LTV, only $500,000 of the $800,000 requested can be included because the total amount for operating expenses cannot exceed 25% of the appraised value.

Example 4: Cash-out for eligible business expenses*

Borrower seeks to refinance $1 million in existing qualified commercial real estate debt, plus $400,000 borrowed three years ago for equipment and inventory, plus $100,000 for next year’s salary for an additional employee. Property appraises at $2 million.

Acceptable SBA Refinance Loan Structure
SBA 504 debt refinance example 4

Comments: The SBA refinance program can be used for both restructuring qualified debt and accessing equity for business operating expenses. Because the LTV amount does not exceed 75% and business operating expenses do not exceed 25% of the appraised value, this request meets SBA 504 refinance program guidelines.

Example 5: Cash-out for eligible business expenses*

Borrower seeks to refinance $200,000 in existing qualified commercial real estate debt, plus $1.3 million to cover other obligations and/or business expenses, some of which will be incurred in the following six months. Property appraises at $2 million.

Acceptable SBA Refinance Loan Structure
SBA 504 debt refinance example 5

Comments:The SBA refinance program can be used for both restructuring qualified debt and accessing equity for business operating expenses; however, only $500,000 of the $1.3 million requested can be included. With cash-out for operating expenses, the total LTV cannot exceed 75% of the appraised value and business operating expenses cannot exceed 25% of appraised value.

*Eligible business expenses include salaries, rent, utilities, inventory or other obligations of the business.

There are many acceptable structures for SBA refinance loans, contact us to find a suitable solution to access the equity in your building.

 

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