The Small Business Administration is offering a temporary refinancing program for commercial real estate mortgages that mature beginning in 2013, and for which owners have had difficulty getting financing through regular channels like banks.
In February, the SBA implemented a temporary refinancing program enacted under the Small Business Jobs Act of 2010, which allowed small businesses facing maturing commercial real estate mortgages or balloon payments before the close of December 2012 to refinance with an SBA 504 program loan. SBA is now lifting that date limitation in an effort to help more small businesses avoid potential foreclosure on mortgages approved before and during the recession that were based on inflated real estate values.
For the 2010 fiscal year ending last October, SBA lending in Connecticut was up by a quarter from the year before in line with national trends. Since the federal jobs bill lowered fees and increased guarantees on SBA loans last fall, the number of SBA loans issued nationally is down slightly as of the start of April, but the total dollars lent is up more than 40 percent.
Still, the dollar growth has occurred entirely in the arena of SBA 7(a) program loans used for working capital, rather than for the 504 program loans used to buy or improve real estate. The SBA”™s traditional 504-loan program is intended as an economic development tool within a community, providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
The new program arrives even as SBA reassigns and promotes its longtime deputy district director in Connecticut Greta Johannson to lead New Hampshire”™s SBA office.
In a press release, SBA Administrator Karen Mills said the agency expects significant interest in the new refinancing program, with the agency predicting as many as 20,000 small businesses nationally could seek financing under the program.
“With the collapse of the real estate bubble, many small-business owners have found themselves unable to refinance as a result of inflated real estate values at the time they took out their mortgage,” Mill said.
To be eligible for the temporary 504 refinancing program, a business must have been in operation for at least two years. Only debt on owner-occupied real estate is eligible for refinancing and payments must be current for the past year.
The refinancing loan is structured like SBA”™s traditional 504 loan, which typically includes three elements: a loan (or first mortgage) secured with a senior lien from a private-sector lender covering half of the project cost, a second mortgage secured with a junior lien from an SBA-certified development company (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost and a contribution of at least 10 percent equity from the small business taking out the loan.
Borrowers are able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Loan proceeds may not be used for other business expenses. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.
