The SBA's rule changes, effective November 15, 2024, will help your business borrowers in a number of ways, including making it easier to refinance debt.
Also, the new rule change broadens the way businesses can use funds through refinancing, especially when they're looking to expand. There's much more to these rule changes you'll want to know and make your clients aware of!
For Stand-Alone Debt Refinance (Without Expansion):
- The loan to value limit is now up to 90% in all cases including requests for ‘cash out’ for other business expenses and special use properties.
- In addition, the 20% LTV cap on cash out for other business expenses is GONE! Cash out can now take the project up to 90% LTV! As a reminder, ‘cash out’ for other business expenses can be used to pay down the business’s line of credit, business credit cards (borrower needs to certify the funds were used for business purposes), and / or future operating expenses of the business coming due within the next 18 months.
- Finally, we are again allowed to refinance certain “other secured debt” within the project. For example, if you extended a working capital term loan secured by the real estate being refinanced into a 504 structure, it can now be rolled into the 504 refinance project. Previously, this was not allowed.
General Changes for Refinance Projects (With or Without Expansion):
- The “substantially all” standard for 504 debt refinancing with expansion is now consistent with 504 debt refinancing without expansion. The standard is now 75% fixed asset use for the original, qualified debt for both programs.
- With revisions to the ‘substantial benefit’ test for 504 debt refinancing, we now have flexibility to allow any payment improvement to meet the requirement which will expand borrower access. Note that balloon notes automatically qualify.
Would you like to learn more about how the 504 refinance program can benefit your existing and prospective borrowers? Our team is ready to assist— whether in person or virtually to walk through these updates as well as to show you how the new and improved program can be used. Please reach out to your WBD Loan officer for more information!
