SBA Temporarily Refinancing Business Real Estate Mortgages
With the crash of the real estate market, home owners are not the only ones who are suffering. Many small business owners are seeing their real estate as a liability, as the mortgages on them now exceed the value, and the terms are not friendly. Refinancing is difficult, and this can spell trouble for small business. However, if you are a small business owner with a commercial real estate mortgage, and fear the worst, SBA might be able to help. Commercial real estate mortgage that matures after December 31, 2012, are now eligible for secure, stable, long-term financing through SBA's new temporary 504 refinancing program.
The 504 refinancing program allows small businesses to get long term financing and avoid foreclosure on mortgages obtained before or during the recession, and based on inflated real estate values. Before the recession hit, many business owners purchased real estate and planned to refinance it a few years down the road, settling for short-term, variable financing, and now are faced with balloon payments and other problems that they can't meet.The 504 refinancing business real estate program addresses these problems, and helps small business owners to retain their properties, restructure debt, and free up capital in order to stay in business and not foreclose on their commercial property. The idea is that in doing so, the SBA will help small businesses to grow, and create new jobs.
There are five requirements for eligibility:
1. Your business must be in operation, and have been for at least two years.
1. The only property eligible for refinance through this program are owner-occupied real estate.
2. The debt must have been incurred no less than two years prior to date of application.
3. Proceeds must be used for 504 eligible business expenses.
4. Payments on the commercial real estate must be current for the last 12 months. This is not for property that is already in crisis.
In addition to the above five eligibility requirements, existing 504 projects and government-guaranteed loans are not eligible for refinance. Also, those who can't meet the structuring requirements will not be eligible. The 504 refinance program is structured in the way of the traditional 504 loan. This is broken into three parts. A first mortgage or senior lien on the property for 50% of the cost, this must be a lien from a private-sector lender. Then the SBA will provide 40% of the cost as a junior lien from an SBA CDC, 100% guaranteed by SBA. Then 10% must be a personal contribution from the borrower. This program will be in effect until September 2012. It has 15 billion dollars worth of loan money available for the program, and no loan subsidy is required by taxpayer money because there will be feeds charged to the borrower in order to cover the cost of the program.
It is estimated that 20,000 small business owners will benefit from this refinance program, and thus create jobs, and economic growth.