How to Refinance Business Debt with an SBA Loan Program

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Debt is often a necessary part of running a business. Whether you needed a small bridge to get started or working capital to fund growth, borrowing money is often a pre-requisite to making money.

But high interest rates and large loan payments can raise your monthly expenses, make it harder to turn a profit, and eat into cash flow. Plus, debt makes it harder to secure financing going forward since many banks won’t approve loans for businesses that carry too much debt.

At this point, debt refinancing is an attractive proposition. Taking out a new loan to pay off old debts, with better rates or fees, can reduce your monthly payments.

Many lenders offer debt refinancing services, but, thanks to low interest rates and a renewal by Congress, the SBA 504 Refinance Program is a very attractive option for small businesses.

About the 504 Refinance Program

With advocates such as the U.S. Chamber of Commerce, National Association of Women Business Owners, the International Franchise Association, and more, the SBA 504 Program offers exceptionally low fixed rates and a low down payment for refinancing eligible fixed assets .

First introduced as a temporary stimulus measure by the Small Business Jobs Act of 2010, the 504 Refinance Program was originally a temporary measure designed to increase access to refinance options following the contraction in credit markets. With the support of Congress, in 2016 the SBA permanently authorized the program providing much-needed refinancing relief for small businesses seeking to reduce debt on adjustable loans.

What Kind of Debt Relief Does the 504 Refinance Program Provide?

If you’re paying steep loan repayments for real estate (such as hotels, gas stations, day care facilities, and assisted living) or other major capital expenditures (land, equipment, etc.), SBA debt refinance can help. Under the 504 program, eligible business owners can borrow up to 90% of the value of their property, with a 10% down payment by the owner. Rates are fixed for a 20-year term.

As an SBA-approved lender, 504 refinancing is available through First Bank SBA with the added benefit of same-day proposal assistance and loan approvals for within three business days.

Why the 504 Program Matters to Small Business

The original 504 Refinance Program which ran for 16 months between 2011 and 2012 saw 2,300 small businesses refinance $5 billion in capital that was previously locked into real estate and equipment – saving some businesses up to $100,000 in lower interests rates each year. Furthermore, according to the National Association of Women Business Owners, depending on the loans refinanced, some businesses saved as much as $10,000 or $20,000 per month on payments. Freeing up capital to then be reinvested back into their businesses – creating and sustaining jobs.

Could You Be Eligible to Refinance under the 504 Program?

To qualify you must have been in business for two years, and meet the following conditions:

  • The debt must be a commercial loan and incurred at least two years prior to the refinancing application.
  • The loan proceeds must have been used to acquire assets such as owner-occupied real estate, land, equipment, etc.
  • All payments for the prior 12 months must be current.

Existing 504 loans are not eligible for refinancing

Other Refinancing Loans to Consider

The SBA also maintains several other loan programs, which in certain instances may be used for debt refinancing. These include the 7(a) loan program, community advantage loans, and rural business loans (administered by the U.S. Department of Agriculture). Contact us to learn more.

Before you Apply

Before you consider refinancing, look at your business. Has anything changed since you last financed it? Has your credit score improved? What about revenues? How long have you been in business? If things are looking positive in each of these areas, then your chances of securing refinancing will go up.

To discuss your eligibility or interest in SBA refinancing options, contact First Bank SBA. Our SBA experts will help you better understand the program and guide you through the application process.