Pub. 11 2021-2022 Issue 3

coloradobankers.org 14 A nyone who participates in SBA financing eagerly awaits new 504-debt refinancing rules. After much anticipation, on July 29, 2021, the U.S. Small Business Administration published the new interim final rules for 504-debt refinancing programs as authorized under Section 328 of the Economic Aid Act. The new rule was effective immediately. The updated regulations expand the usefulness of 504-debt refinancing programs to assist small business recovery and growth. Check out the updates below. For 504 debt refinancing WITHOUT expansion: Qualified debt — must be at least six months old before the SBA application date to be eligible for refinance, reduced from two years old. Qualified debt for the small business is defined as at least 85% of the original debt that was allocated for financing eligible fixed assets. New businesses are not eligible for refinance without expansion. The applicant must have been in business for at least two years. (Note: this is not a “new” rule.) Allows the refinance of existing government- guaranteed debt — existing SBA policies related to refinancing existing 504 or 7(a) loans will apply (these are the same requirements that currently exist for the 504- debt refinance with expansion program), including the following: • For an existing 504 loan, either both the third-party loan (1st mortgage) and the SBA 504 loan (2nd mortgage) must be refinanced, or the third-party loan must be paid in full. • For an existing 7(a) loan, the CDC must verify in writing that the present lender is either unwilling or unable to modify the current payment schedule. In the case of same institution debt, if the third-party lender or the CDC affiliate is the 7(a) lender, the loan will be eligible for 504 refinancing only if the lender is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms. • The refinancing of any federally-guaranteed debt will provide a “substantial benefit” to the borrower — minimum 10% savings on the new installment amount attributable to the debt being refinanced (same definition as currently used in the 504-debt refinance with expansion program); this is now required for all 504- debt refinance without expansion projects. Prepayment Be in the Know – SBA 504 Refinance By Juliene Wynn, Director of Lending & Compliance, Preferred Lending Partners