The Small Business Administration (SBA) recently released a new SOP (Standard Operating Procedure 50 10 7.1), which includes changes that make the SBA 504 Refinance Program even more obtainable. The updates aim to make the SBA 504 loan available to more small businesses by modifying eligibility criteria and adjusting previous regulations.
These changes will be effective November 15, 2024.
Summary of New SBA 504 Regulations
- Raises the maximum loan to value from 85% to 90% on debt refinancing without expansion that includes cash out for Eligible Business Expenses (working capital)
- Eliminates the cap on Eligible Business Expenses (“EBE”). Previously the EBE amount was limited to 20% of the appraised value.
- Revises the 10% substantial benefit test when refinancing other government debt. Now any savings on the proposed new payments is sufficient.
- Allows certain “other secured debt” to qualify as an Eligible Business Expense in 504 debt refinancing without expansion.
- Both 504 refinancing programs now require only 75% of the original loan to have been used for Eligible Fixed Assets.
*All SBA 504 information above is subject to full pending SBA implementation guidance – required regulations, notices, and revised forms. The regulations surrounding a CDC’s ability to implement the new regulatory changes are still being finalized. The SBA is expected to provide more information as soon as it is available.
Please check back for the most up-to-date information and contact a TMC Financing representative to discuss your project details.
SBA 504 Refinance Updates from 2023
- Businesses can qualify for the SBA 504 Refinance Program when 75 percent of the original loan was used for 504 eligible assets (the previous requirement for cash-out projects was 85%).
- No need to wait 6 months to avoid a personal guarantee
- A stronger guarantor can be substituted for a weaker one – allows for familial guarantees to strengthen the cash flow of a transaction.
- If more than one owner, only the 20% owners up to 51% of the ownership is required to guarantee – no social security numbers or data is required to be collected from the minority ownership
- The SBA will no longer require a letter from the existing lender, streamlining and simplifying the refinance process. (Note: when the loan has been submitted to the SBA for approval, the existing lender must be notified within 10 business days.)
- Simplification of Affiliation rules
- No more Franchise Directory
- Reduced factors for determining creditworthiness
- Character Clearances
- Businesses can qualify for the SBA 504 Refinance Program when 75 percent of the original loan was used for 504 eligible assets (the previous requirement was 85 percent).
Procedural Changes
- The SBA will no longer require permission from the original lender, streamlining and simplifying the refinance process.
(Note: if refinancing a 7a or 504 loan, a letter must be sent to the original lender within 10 businesses days of submitting to SBA for approval)