Turn Equity Trapped in Real Estate into Cash with the SBA 504 Program

Today’s Rates are Historically Low – Now’s the time to Refinance!

The SBA 504 Program provides an easy solution to potentially save small businesses thousands on their monthly occupancy costs and provides an opportunity to access cash trapped in equity. With refinance rates at record lows, currently 3.03 percent on a 25-year fixed term, now is the most opportune time to refinance with an SBA 504 loan.

So the timing is right, the rates are low, but why utilize the SBA 504 Program to refinance? Easy – you’ll get the most bang for your buck. The SBA 504 loan is government-backed financing that comes with unbeatable terms. Additionally, under the CARES Act, there are even more benefits for business owners who refinance in the next couple months.

Six months of debt forgiveness

Under the CARES Act, the SBA will make payments on SBA loans for existing AND NEW SBA 504 loans. This means if a business owner refinances and funds the loan by the September 16th, 2020 debenture sale, the first 6 payments will automatically be paid by the SBA. Loans that are approved by mid-July will generally fund by September.

Access Cash Trapped in Equity

The majority of small businesses right now are strapped for cash. Many are applying for new loans, but that will not be enough. Refinancing with low rates and unlocking the trapped equity could help remedy the problem.

With the SBA 504 refinance program, business owners can obtain cash (up to 20 percent of the appraised value) to use on qualified business expenses, which include salaries, rent, utilities, inventory or other expenses of the business. With cash out, business owners can refinance up to 85 percent of the appraised value, as opposed to 90 percent without cash out.

Obtain a below-market fixed interest rate

The SBA 504 program offers business owners the opportunity to secure below-market, fixed interest rates, amortized over 25 years, for up to 90 percent of the appraised value of commercial real estate property.

Gain occupancy-expense predictability

Business owners can enjoy fixed occupancy costs and a repayment period of up to 25 years, with no balloon payments. With stable and predictable operating costs, business owners can accurately budget for years ahead.

Consolidate Multiple Loans

With the SBA 504 Refinance Loan, business owners can consolidate all their conventional loans into one – with a long term, low rate, allowing for increased cash flow and significant savings.

Are you eligible?

Just like a standard SBA 504 Loan, most small to medium sized businesses that operate for-profit in the U.S. quality for the program.

  • The business and existing loan must be at least two years old and the borrower must own business during those two years
  • At least 85 percent of the original loan must have been used for a 504 eligible asset, such as owner-occupied real estate, land or equipment.
  • The borrower must be current on all payments for at least the last 12 months prior to the refinance application
  • SBA loans are ineligible for SBA 504 Refinancing

SBA 504 Loan Structure

The 504 refinance loan is structured like the traditional 504 loan, consisting of three parts:

  • 50% Conventional lender
  • 40% CDC
  • 10% Borrower
  1. A 1st mortgage secured with a first lien from a conventional lender covering 50 percent of the project cost;
  2. A 2nd mortgage secured with a second lien from a CDC (Certified Development Company), such as TMC Financing covering up to 40 percent of the total cost; and
  3. A contribution of at least 10 percent equity from the small business borrower. (Start-up businesses and single-purpose facilities require a slightly higher equity contribution of 15 percent.)

The program helps business owners conserve their operating capital, while the structure of the program makes it attractive to financial institutions.

For Example

A small business owner, has $1,500,000 outstanding conventional debt on their building and needs $200,000 cash for business needs. The property appraises at $2,000,000.  Without any additional injection, the owner’s new financing would look like this:

Bank 1st Mortgage (at 50 percent loan-to-value)   $1,000,000
SBA 2nd Mortgage                                                    $700,000
No cash injection needed from applicant

With the 25-year fixed, below market rate of the SBA 504 loan, the borrower can enjoy monthly savings and increased cash flow.

While the opportunity to refinance with a 504 loan has been available for years, it is an underutilized program for a few reasons. One, compared to the overall SBA 504 program, the 504-refinance program is not as well known. In FY 2019, the SBA only approved 166 refinancing loans nationwide, totaling $154.8 million.

Secondly, there’s an incorrect perception that commercial-loan refinancing is a complex and time-consuming process. In fact, the typical time it takes to complete an SBA 504 refinance deal is comparable to that of a conventional loan; just a few more forms and a bit more document research on the existing debts to be refinanced.

In order for a small business to prosper, cash flow is of upmost importance. The amount of cash flowing into the business needs to be greater than the amount flowing out. This being said, reducing monthly expenses in order to maintain healthy cash flow is typically a top priority for business owners, however certain circumstances can accelerate the need for additional capital. This is the grave reality facing today’s small business owners who are scrambling for relief. Now, more than ever, small businesses are in need of cash and reduced expenses.

There is no doubt that this will not be the one and only crisis that will shed light on the need for savings and liquid capital. The SBA 504 Refinance Program is a powerful tool and a fantastic opportunity to obtain cash and lower monthly payments.


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