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Colorado Lending Source | Jul. 15, 2020

SBA 504 Refinance Loan Program Frequently Asked Questions

What is the Small Business Administration (SBA) 504 Refinance loan program? 

  • The SBA 504 Refinance Loan program is an opportunity for small businesses owners to refinance their existing commercial real estate loan with an SBA 504 Refi loan, which functions under the same terms as a typical SBA 504 loan program. (Learn more about the SBA 504 loan program here.)
  • We know the program names are confusing, but unfortunately, existing SBA borrowers are not eligible to apply unless the business is expanding or acquiring additional property. (Details vary. Contact us for more information.)

What are the eligible uses?

  • Business owners can refinance their existing commercial real estate loan (excludes borrowers with an existing SBA loan) as long as their business occupies 51% or more of the property.

What are ineligible uses?

  • The debt being refinanced may not be an existing SBA loan.
  • Renovations and capital expenditures cannot be funded with the cash-out option; however, repairs are eligible.

What are the benefits?

  • If a borrower decides to refinance using the cash-out option, they are able to tap into their commercial real estate equity that can finance ordinary business expenses, such as payroll, professional fees, utilities, inventory, etc.
  • This program offers low, long-term, fixed interest rates up to 25 years. Current interest rates are below 3%.

How long does a business need to be in operation for? 

  • They must have been in operation for the last two years and must have been current on their loan payments during the one-year period prior to the date of submitting the SBA 504 Refinance application.

What is the Loan-to-Value (LTV) requirement? 

  • The LTV requirement for most SBA 504 Refinance projects is a maximum of 90%.
  • If it is a special purpose property, the LTV requirement would be 85%.
  • If this is a second SBA loan for a special purpose property, the LTV requirement would likely be 80%.
  • If the project involves cash-out, the maximum LTV is 85%.

Can a borrower cash-out equity on their property?

  • A borrower can cash-out the maximum loan-to-value (LTV) 80%, 85%, or 95% and must not exceed 20% of the appraised value property value. 

Is an appraisal needed and when should it take place?

  • The appraisal must be dated within 12 months of the application.
  • An appraisal is not required for presenting to our Loan Review Committee and for SBA approval on a straight purchase; however, we will require it when a borrower is using the cash-out option. 

What is the required documentation to apply?

  • A copy of the existing promissory note
  • Transcript payments for 12 months
  • Documentation that shows 85% or more of the promissory note was used for 504 eligible costs
  • Security documentation such as recorded Deed of Trust and UCCs
  • Appraisal

What if the borrower plans to sell after refinancing?

  • A borrower must notify Colorado Lending Source with any change of ownership for the life of the loan. Any change in ownership within the first 12 months of funding, SBA approval is required.

What is the interest rate?

What are the collateral requirements?

  • Collateral on the SBA 504 Refinance program must match what was taken in the promissory note to be refinanced.

Is a down payment required?

  • The equity within the commercial real estate property will serve as a down payment for the loan.

How does a business apply?

  • If you are interested in applying, please reach out to us and begin working with your bank to start the process.

For lenders interested in learning more, contact [email protected] to schedule a virtual training or download our lender refi guide!

Download Lender Refi Guide