SBA 504 Refinance Rules: What You Need to Know

Business owners

An SBA 504 refinance is a great business loan option to refinance your commercial mortgage. You’ll get a longer repayment term, a fixed interest rate, and can even use your building’s equity to grow your business! 

With its beneficial loan terms, you can lower your monthly payments by refinancing with an SBA 504 loan. Before you apply, though, it’s important to understand some key points about the SBA 504 refinance option that may be different from other small business loans.

Is an SBA 504 refinance right for your business? Here’s what you need to know and how you can prepare before you apply.

Is an SBA 504 refinance right for your business?

While SBA 504 loans are a great option for purchasing or renovating real estate and buying major equipment, you can also use them to refinance eligible business debt. This  includes mortgages for real estate related to your business.

SBA 504 refinance loans offer:

  • Long-term repayment schedules, from 10-25 years (depending on the specifics of your loan), compared to more typical 5-10 year terms
  • Below-market, fixed interest rates for the life of the loan, making it easier to plan and budget for your business
  • Lower owner-equity requirements, with financing up to 85-90%
  • The ability to finance expansion costs and refinance your debt all in one project

Additionally, if your business is eligible for an SBA 504 refinance, you can convert some of your equity into working capital. Taking into consideration the appraised value of the asset you’re refinancing, you can apply for up to 20% of it to be used for eligible business expenses (within an 85% loan-to-value ratio). This means that you can use your existing equity as working capital at a low interest rate with longer repayment terms, making it a very affordable option.

SBA 504 refinance: Basic eligibility criteria

To be eligible for an SBA 504 refinance, your business needs to meet these basic criteria:

  • Yourbusiness must be in operation for at least two years.
  • The mortgage debt you’re refinancing must be at least six months old.
  • Eighty-five percent or more of your existing mortgage must have been originally used for an eligible SBA 504 project. In other words, if the original project wouldn’t be approved as an SBA project, then it may not qualify for an SBA 504 refinance.
  • If this isn’t the first time your fixed asset is being refinanced, 85% of more of the original loan must have been SBA 504 eligible.
  • With the expanded SBA 504 refinance rules, you can refinance existing SBA 7(a) or SBA 504 loan. 
SBA 504 refinance eligibility checklist
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What documents do I need for an SBA 504 refinance?

Here are some of the key documents you’ll need when you apply for an SBA 504 refinance:

  1. A copy of the existing, recorded mortgage agreement and deed, including any amended or modified agreements.
  2. Payment transcripts for the 12 months leading up to your application date. These are the monthly statements from your current mortgage lender that should show your balances and payments.
  3. If you want to use your equity for eligible business expenses, you’ll need documentation of your business’s operating expenses. This includes breakdowns of expenses you’ve incurred but haven’t paid by your application date or those that will be due within 18 months from that date. Some of the expenses might include salaries, rent, utilities, inventory, and other expenses that aren’t capital expenditures.

Pursuit can help

Our goal is to help small businesses get the funding they need to succeed and we’re committed to working with businesses like yours to grow stronger. We offer more than 15 business loan programs, including the SBA 504 refinance option. 

To learn more about how we can work together to take your business higher, contact us today.

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