Participating SBA lenders required to submit applications by September 17th
Santa Ana, CA - A refinance program targeting business owners with commercial real estate loans is set to expire in September, and according to Adalberto Quijada, District Director of the U.S. Small Business Administration, there may not be another opportunity like it.
“The program makes it possible for small business owners to refinance debt at lower interest rates and realize increased cash flow for their business,” he said. “If you’re trying to improve your cash position, now is the opportunity to do that.”
The SBA’s 504 refinance loan, which expires Sept. 27, was authorized through the Small Business Jobs and Credit Act in 2010. The program provides businesses with access to long-term, fixed-rate loans they can use to refinance high interest or maturing real estate debt. The program was intended to be temporary, with traditional 504 refinance loans available to assist with business expansion.
SBA 504 interest rates in July were 4.46 percent on a 20-year loan and 3.7 percent on a 10-year loan.
Since the beginning of the fiscal year on October 1st, 2011, the Santa Ana SBA office has approved 49 504 refinance loans. The program has contributed to 9 percent of SBA’s lending in the area this year in terms of gross dollars guaranteed.
“It’s been going very well, but we know there are more businesses that can benefit before the time runs out,” according to Quijada.
A local business that took advantage of this temporary program is AmericasPrinter.com, headquartered in Buena Park that received a $3.9 million refinance loan through Chase Bank and TMC Financing. “I had a conventional loan on the building. I was fortunate enough to get a more favorable rate with SBA through the 504 refinance program. What was really fantastic is that we were able to lock in 20-year fixed money at a very affordable rate. We were able to have a better mortgage payment for our print shop,” according to Artie Parent, President of the company. “We’ve already grown 40% in the last fiscal year, and thanks to SBA and Chase, this will allow us to further grow our business.”
Similar to the 504 loan, the 504 refinance loans are processed by approved CDCs and structured like a “standard” 504 loan. In this arrangement, the bank provides up to 50% of the project cost and holds the first lien. The CDC provides up to 40% of the project cost and takes a secondary position on the lien. The borrower must have 10 percent existing equity in the property or must inject equity of at least 10%.
In order to qualify, substantially all of the proceeds of the original debt being refinanced must have been used for 504 eligible purposes, such as acquisition, construction or improvement of long-term assets, and the remaining 51% or less must have been incurred for the benefit of the small business. The small business must be for-profit and have a tangible net worth of less than $15 million and an after tax profit of less than $5 million for the previous two years. The small business must occupy at least 51% of the property at the time of the refinance application. The property must have been acquired at least two years ago with commercial debt. Up to 90% of the current appraised value can be refinanced. Existing government guaranteed loans are not eligible to be refinanced.
The highest volume CDCs in the Santa Ana District are CDC Small Business Finance Corp., EDF Resource Capital, Inc., and Southland Economic Development Corporation.