Low-Cost Real Estate Financing For Small Businesses: SBA Brings Back 504 Refinancing Program In June

Maria Contreras-Sweet, head of the Small Business Administration. On June 24th, the SBA will begin accepting applications for its 504 refinancing program, which allows small business owners to refinance their real estate debt. (Photo by AP Photo/Jacquelyn Martin)

For small businesses with high-cost loans for office buildings, warehouses or other real estates, a new government program offers potential relief: The Small Business Administration’s  will begin accepting applications for its 504 refinancing program on June 24.

The SBA’s 504 loan program offers small business owners a way to access cheap capital for real estate and other major capital expenditures. The 504 refinancing program allows those who already have such debt to refinance it into long-term, fixed-rate loans. That may be especially valuable for entrepreneurs and small business owners who want to get rid of high-cost debt, including adjustable-rate debt, as well as those who have assets that have appreciated and want to take out some cash for expansion.

The refinance program originally had been introduced as part of the Small Business Jobs Act of 2010 to help small businesses get capital at a time when the commercial lending market was frozen. But that was a temporary measure, and it expired in 2012. In December, Congress agreed to resurrect the program and make it permanent – a potential boon for small business owners who want to lower the costs of their real estate debt. Today, the SBA is authorized to approve up to $7.5 billion in the regular 504 loan program and another $7.5 billion under the 504 debt refinancing program.

“We’re glad the program is finally out,” says Kurt Chilcott, president of San Diego-based CDC Small Business Finance.  “What happened was the program ended just as it was getting momentum. There were actually applications in the process when the program ended.”

Under the 504 refinancing program, eligible small business owners can borrow up to 90% of the value of a property, with 10% down, less than would typically be required for a commercial loan. The project financing – 20 years for real estate or 10 years for capital equipment – is split between a bank or other private-sector lender, which generally accounts for 50% of the project, and the fixed-rate 504 loan for the remaining 40%. The effective 504 interest rate on the 20-year debenture was 4.78% in May, according to the SBA.