The cash-out for business purposes is a HUGE change!

These revisions are expected to include:

1. “50% RULE” - Removal of the requirement that the first mortgage lender’s portion of the refinancing be at 50% of current value of the fixed assets secured as collateral.  The revised requirement is that the total project be calculated based on the debt payoff balance plus eligible closing costs. 

For example, the current program rules dictate that if the value of the collateral is $2,000,000 and the debt payoff is $1,200,000 then the lender must provide a first mortgage of $1,000,000 (50% of value) and the SBA 504 loan is $200,000.  Under the revised rule, the financing would be split equally between the lender and the SBA 504 loan at $600,000 each.  This greatly improves the lender’s position and allows the borrower to get more of their financing on the low fixed rate SBA 504 portion.

 2. Working Capital – the revised rules will permit a borrower to cash out up to 90% LTV as long as the cash will be used for eligible business expenses currently due but unpaid or due within 18 months of the application date.

For example, if the value of the collateral is $2,000,000 and the debt payoff is $1,200,000, the borrower could get up to $600,000 in cash out for eligible business expenses.  The financing split would be $900,000 (45% LTV) for the lender and $900,000 for the SBA 504 loan with $1,200,000 used to pay off existing debt and $600,000 for working capital.

3. Genealogy of the Debt – we will now only need to be provided with a copy of the current note and lien instruments and not the entire genealogy of the debt in the case where an original loan has been renewed and/or refinanced.  The Borrower and CDC must certify either:

 (a)     Substantially all (85% or more) of the proceeds of the indebtedness being refinanced was used to acquire an Eligible Fixed Asset (e.g., land, including a building situated thereon, to construct a building thereon, or to purchase equipment) and the remaining amount (15% or less) was incurred for the benefit of the small business seeking the refinancing; or

(b)     The loan that originally financed the Eligible Fixed Asset satisfies the 85/15 criteria AND the current commercial loan is the most recent refinancing of that original loan.

There are a few other minor tweaks to the program but these are the major ones that will affect deal structure and eligibility. Please let us know if we can assist you with your commercial refinance requests through the SBA 504 loan program. 

We are here to help you understand the SBA 504 loan program.

Call Brett today for a REFI or purchase of your owner occupied property. 800-557-0682