Refinance Loans with an SBA 504 Debt Refi

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Refinance Loans with an SBA 504 Debt Refi

East Texas Regional Development Company • Dec 10, 2020

Photo of woman smiling at customer while using tablet to take transaction.

The year 2020 has been full of ups and downs and has been especially difficult for small businesses. But with historically low-interest rates, now is the time to reach out to your existing customers and prospects to refinance those debts with a Small Business Administration 504 Debt Refi without expansion.

With the 504 Refi, the 50-40-10 rule doesn’t apply!
Refi, without expansion, can use loan-to-value to structure the financing.
Net 504 loan amount cannot exceed 40% of the financing.
504 Refi amount cannot exceed the amount of the third party loan but can equal it.

Example:

$1 Million Refi Loan

Split $500,000 TPL & $500,000 Net Debenture

Since the 504 refi cannot exceed 40% of value, the appraised value must be no less than $500,000/40% = $1,250,000. We get this financing structure:

TPL: $500,00
504 net: $500,000
Equity: $250,000

You can change total project costs to the value of the real estate, it's not going to change your financing.

The borrower already owns the real estate, and its contribution is the equity it already has. And you just offered them a 25-year fully amortized loan at a low-interest rate for absolutely nothing down!

Need more information? Contact our Community and Economic Development Manager, Chuck Vanderbilt, today.

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