Borrowers Treading Water in a Rising Rate Environment with Variable Rate 7(a) Real
Estate Loans?
The SBA 504 Refinance Loan Program is a Lifeline!
The current rate environment is an excellent time to refinance an existing variable 7a real estate loan to a long-term fixed rate SBA 504 loan.
The SBA 504 Refinance Loan Program allows the refinancing of existing 7a real estate loans. While some SBA 7a loans may have fixed rates for 25 years, the majority have a rate reset after 3 to 5 years or are variable interest rates. In the current rising rate environment, variable interest rate 7(a) real estate loans may have increased by 3.75% over the last 9 months and could be as high as 9.75% (2.75% + prime).
Through the 504 Refinance program, small businesses can take advantage of below-market, fixed interest rate refinancing with repayment terms up to 25 years for up to 90% of the appraised value of commercial real estate property. Borrowers may also refinance eligible business operating expenses (cash-out option).
Standard Refinance Requirements
a
The SBA 504 refinance must meet the following standard refinance requirements:
- Minimum 10% improvement on payments;
- Loan must be seasoned over 6 months;
- 85% or more of the proceeds must have been used to purchase 504 eligible fixed assets;
- Borrower must have good repayment history with no potential loss-shifting to SBA;
- Current on all payments due; and
- The collateral for the most recent loan includes, at a minimum, the same Eligible Fixed Assets that served as collateral for the former loan being refinanced.
7(a) Specific Refinance Requirements
a
Additional requirements for an SBA 504 refinance of an existing 7a loan:
- An existing 7(a) loan may be refinanced if the present lender is unwilling or unable to modify the current payment schedule.
- Same Institution Debt is eligible only if the lender is unable to modify the loan because secondary market investors will not agree to modify the terms.
- Must provide documentation that existing 7(a) lender is not willing to modify terms.
The SBA 504 Refinance Loan Program can potentially save borrowers thousands of dollars every month by refinancing an existing 7(a) loan.
With more than 35 years’ experience, Florida First Capital Finance/First Capital Finance is one of the nation’s top-ranked CDCs serving Florida, Georgia, and Alabama. To learn more about the SBA 504 Refinance Loan Program, click here to contact an FFC/FCF Business Development Officer in your area. We are here to help!
