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SBA 504 Refinance Updates

In September 2010 the Small Business Jobs Act was passed into law.  Yesterday the rules for the refinance mechanism within the 504 loan program were announced.  This program will provide a significant tool for small business owners to refinance existing 504 program eligible debt.  Some key points from the new 504 Refi rules:


  • Three sources of funding for the refinance project:
    • Third Party Lender (at least 50%)
    • SBA (not more than 40%)
    • Borrower (at least 10%)
  • Most (at least 85%) of loan being refinanced must be used for 504 eligible purposes.
    • Borrower must certify that the debt meets the eligible use of proceeds standard.
    • Third Party Lender must also certify that it has no evidence of debt not meeting the use of proceeds standard.
  • Loans being refinanced must be scheduled to mature on or before 12/31/2012.
  • Loans being refinanced must be current.
  • Small business must have been in business for two years prior to the submission of the application.
  • Third Party loan and 504 loan cannot exceed 90% of the value of the fixed assets securing the loan.
    • The loan may never exceed the outstanding principal balance being refinanced.


  • No refinancing of loans with an existing federal guaranty.
    • 7(a) loan
    • USDA loan
  • No refinancing of debt to an Associate of the Borrower, SBIC, or New Market Ventures Capital Company.
  • No refinancing of existing 504 projects.
  • No refinancing where the creditor is in a position to sustain a loss causing a shift to SBA on all or a portion of a potential loss from an existing debt.
  • All loans must be funded by the sale of the debenture within six (6) months of approval.
  • The CDC must report any delinquency to SBA after loan approval but before loan funding.

As you can see the new regulations are specific in what types of loans can be refinanced and the requirements for both the lender and borrower.  This is a very exciting program from the SBA and should be a significant source of projects through 2012.