Sec. 504 Refi Program Could Be Lifeline

By Robert Freedman, Senior Editor, REALTOR® Magazine

In the flood of information we try to process on a daily basis, it’s easy to miss something that can be genuinely useful. If you work with commercial property owners, you might have missed the Small Business Administration’s announcement around this time last year that it’s making its Section 504 loan program available for refinancing commercial mortgages on a temporary basis.

The move was a response to the problems property owners were having refinancing their mortgage loan before the loan term ended.

It took SBA several months to actually come out with its program rules, but it finally did so, in October of last year, so the program is now up and running.

What’s attractive about the program is the new loan term can be fairly long and borrowers can use a portion of the proceeds as working capital. And since the loans are backed by the federal government, rates should be fairly reasonable, although you can expect to fill out more forms. The other point to note is that the program expires around the same time as the end of the federal fiscal year (end of September), although that could change if Congress decides to extend it.

One of our colleagues at REALTOR® Magazine who writes about commercial real estate, Mariwyn Evans, talked with an SBA-approved lender last week about the program and wrote up a short blurb about the program. Her write-up follows. To access SBA information on the program, go to its FAQ.

Loans guaranteed by the Small Business Administration have long been a source for business owners who wanted to purchase real estate for their companies’ use. Temporarily, however, SBA-backed loans can also be a source of refinancing for existing commercial mortgages, says Chris Hurn, CEO of Mercantile Capital Corp, an SBA lender based in Orlando. “This expanded SBA program gives business owners a way to refinance a commercial mortgage over a 20-year or longer term. And for the first time, business owners can actually get some working capital out of the transaction, which has never been allowed before,” he says. Like all SBA loans, owners may borrow up to 90 percent loan-to-value.

To be eligible for the refinance, says Hurn, loans must not be guaranteed currently by SBA and must have no payments more than 30 days past due according to the original or modified terms of the loan. In addition, 85 percent of the original loan amount must have been borrowed to buy or expand fixed assets of the business, including real estate.

With today’s low interest rates and the ability to lock in a 20- or 25-year term with a fixed interest rate for five years, SBA-backed loans are the least expensive way for a business owner to refinance debt, says Hurn. One catch: the refinance program ends on Sept. 27, 2012, so don’t wait.

Temporary SBA Sec. 504 refi program FAQ.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. This is certainly a short time-window to take advantage of this. However, those small businesses that can and do refinance their loans should see good benefit for the extra paper work required.