Deadline for SBA’s 504 Jobs Act Refinancing is Approaching Fast

“Cash is King,” the old axiom goes, and it is true both in personal and business finance. Whether you are the proud owner of an active, successful company, or just taking the first steps toward your dream business, financing your venture takes center stage.

While the nation’s economy is slowly but surely recovering from the Great Recession, many businesses are still in a financial bind that makes it difficult for them to grow and create more jobs.

Does this scenario sound familiar: Accounts payable mounting, new projects on hold, drying up reserves and shrinking returns. You need cash to jumpstart your business, STAT! The question is where to turn to. Refinancing, that’s where, and this may be the best time!

Back in 2010, faced with the challenge of helping small businesses survive the recession and start driving the economic recovery, Congress passed and the President signed the Small Business Jobs Act.  Under it provisions, SBA launched a temporary program to allow small businesses to refinance eligible fixed assets with its 504 program, without requiring an expansion of the business.

The refinance program is slated to expire on September 27, 2012, so, if you feel that your business could use a shot in the arm, now’s the time to roll up your sleeve and consider a 504 refinancing option. 

The SBA’s 504 program offers below market pricing and long term, fully amortizing fixed rates.  Borrowers can finance up to 90 percent of the current appraised property value.  One of its most appealing features is that borrowers may be able to obtain “cash out” proceeds from the refinancing to pay for eligible business expenses such as payroll, inventory and accounts payable, among others.

To be eligible to participate in the 504 refinancing program, applicants need to demonstrate that their loans are current and that they have successfully made all required payments in the last year with no payments more than 30 days past due.  Also, the debt to be refinanced must have been incurred at least two years prior to the application. 

Standard 504 loan Program

The 504 loan program is a long-term financing tool designed to foster development within a community by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets.

Proceeds can be used to:

• Purchase land, including existing buildings
• Purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
• Build new facilities or modernize, renovate or convert existing facilities
• Purchase long-term machinery or equipment, and, under the refinancing program
• And until 9/27/12, refinance of fixed asset debt without expansion and the ability to finance eligible business expenses. 

How a 504 loan is structured

Typically, a 504 loan includes three elements:

• A loan (or first mortgage) secured with a senior lien form a private-sector lender covering up to 50 percent of the project cost
• A second mortgage secured with a junior lien from an SBA Certified Development Company (backed by a 100-percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and
• A contribution of at least 10 percent equity form the small business borrower

Don’t delay your decision. There are opportunities in every business cycle and the time to consider a refinance and to explore how this program can help your business is now.

For more information on the temporary SBA 504 loan refinancing program, visit http://www.sba.gov/content/504-loan-refinancing-program.