SBA 504 Refinance Rule Changes Are Here

Aug 2, 2021 | Training

The interim rule is effective immediately. 

 

New SBA 504 Refinance loan applications can be processed immediately. 

Section 328(a) of the Economic Aid Act revises the conditions and requirements for refinancing debt in the 504 loan program as follows:

  1. For 504 debt refinancing with expansion –
    • Increased the amount of the existing debt being refinanced with an expansion project from a maximum of 50% of the expansion costs to a maximum of 100% of the expansion costs.
  2. For 504 debt refinancing without expansion –
    • Eliminated requirement that the program is only available when the 504 Loan Program is at zero subsidy.
    • Eligible qualified debt must now be at least 6 months old before SBA application date (reduced from 2 years old).
    • Eliminates the requirement that the borrower must be current on all payments due for not less than 1 year before the SBA application date – in accordance with prudent lending standards, SBA expects the CDC to consider whether the applicant is current on all payments due and the applicant’s history of delinquency in its credit analysis – must explain why the refinance does not involve a shift of potential loss to SBA.
    • Now allows the refinance of existing government guaranteed debt – existing SBA policies related to refinancing existing 504 or 7(a) loans will apply (these are the same requirements that currently exist for the 504 debt refinance with expansion program), including:
      • For an existing 504 loan, either both the Third Party Loan and the 504 loan must be refinanced, or the Third Party Loan must be paid in full.
      • For an existing 7(a) or 504 loan, the CDC must verify in writing that the present lender is either unwilling or unable to modify the current payment schedule. In the case of same institution debt, if the Third Party Lender or the CDC affiliate is the 7(a) lender, the loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms.
      • The refinancing of any federally-guaranteed debt will provide a “substantial benefit” to the borrower – minimum 10% savings on the new installment amount attributable to the debt being refinanced (same definition as currently used in the 504 debt refinance with expansion program); this is required now for all 504 debt refinance with expansion projects.

 

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