SBA Expands 504 Debt Refinance Program
The SBA 504 refinance program helps small and mid-size businesses take advantage of lower interest rates and access equity for working capital.
Effective November 15, 2024, the Small Business Administration (SBA) improves the SBA 504 Refinance program to streamline the loan process and expand borrower eligibility (Direct Final Rule 89 FR 79734).
Key Changes to the SBA 504 Debt Refinance Without Expansion:
- Removes the 50% cap on debt refinance without expansion – this corrects a drafting omission in SBA’s Final Rule released on October 12, 2023;
- Raises the loan to value requirement to 90% on debt refinancing without expansion that includes other business expenses and eliminates the cap on Eligible Business Expenses;
- Allows certain “other secured debt” to be included as an Eligible Business Expense in 504 debt refinancing without expansion – “Other secured debt” is debt incurred prior to the 504 loan application that has been secured by the same eligible fixed assets and incurred for the benefit of the borrower and/or operating company.
Key Change to the SBA 504 Debt Refinance With Expansion:
Aligns the “substantially all” standard for 504 debt refinancing with expansion to be consistent with 504 debt refinancing without expansion standard of 75%.
For both refinance with and without expansion, the SBA also revised the 10% substantial benefit test when refinancing government debt. Per SBA Procedural Notice 5000-857295, substantial benefit will mean that the new install amount attributable to the debt being refinanced must be less than the existing installment amount. This change provides flexibility to allow a payment improvement to meet the requirement and expands borrower access.
The SomerCor team is here to help. Download the program flyer, call or email us today regarding these upcoming rule changes and to learn how the SBA 504 Debt Refinance Program can help your clients.
