For small businesses, unaffordable debt can be debilitating. At best, owners struggle with tight cash flow. At worst, they become trapped in a debt cycle that’s virtually impossible to break. Because of this, nearly a quarter of small businesses that apply for funding today do so to refinance debt.* This debt is frequently incurred from credit cards, predatory online loans, or simply conventional loans at higher rates than the borrower would qualify for today.
NYBDC has historically deployed a variety of loan programs to assist with debt refinance; however, our ability to do so has recently been greatly enhanced. In 2016, the SBA permanently reinstated the 504 refinance program, which allows borrowers to refinance qualified business debt into project costs. And, we continued to grow our Excelsior Growth Fund (EGF) SmartLoan™ program, established in 2015, which offers an affordable, responsible alternative to predatory online loans.
“Our goal with the SmartLoan is to keep businesses away from predatory lenders from the start,” says Steve Cohen, president of Excelsior Growth Fund. “However, we’re also successfully leveraging the product to help businesses exit harmful relationships with these lenders.” In fact, in 2017 alone, online debt refinance accounted for 15% of EGF’s loan volume, saving businesses approximately $4,750 in debt payments on a monthly basis.
While the need to refinance debt from high cost online sources is often painfully clear, a significant portion of business debt is from affordable, conventional sources and the signs to refinance are subtle. “Businesses often seek extra funds for working capital or growth, or to restructure their balance sheet,” says Jim Conroy, executive vice president, and president of Pursuit CDC at Pursuit. “The 504 permanent refinance program provides banks with a way to help businesses leverage the equity held in owner-occupied real estate to refinance existing debt into extremely favorable rates, freeing up cash to inject into the business.”
Since the launch of the 504 refinance program, lenders have been working with both bank partners and borrowers to identify opportunities to leverage it. By adding the program, as well as the EGF SmartLoan, to our product portfolio, we are now more fully equipped to meet the refinance needs of the businesses we serve.
*2017 Federal Reserve Small Business Credit Survey
