SBA Policy Notice 5000-1939 – Changes to
504 Debt Refinancing Program Effective 11/17/2016
New SBA 504 Debt Refinancing Program improvements yield new opportunities for applicants that may not have qualified under previous guidelines.
The ominously sequenced SBA Policy Notice 5000-1939 became widely available last November 17, 2016 and it contained good news for small businesses and the lenders providing them financing through the SBA 504 Program.
Most prominent among the revisions to the original Policy Notice from 5/26/2016 are the first and second of the five changes provided, based upon industry comments.
The first of the changes we referred to above effectively allows for di minimis changes in ownership during the required two year period of operations for 504 refinance eligibility. By inserting the requirements of the SOP 50 10 5(H) as regards “new, unproven ownership/management” it allows for a judgment call by the Certified Development Company, subject to SBA concurrence.
Businesses with a small change in ownership from the addition or removal of a passive member are ideal candidates for the consideration to refinance existing debt obligations. When there has not been any change in management or control, the CDC can make a case for consideration with this change in the Policy Notice.
The second change contemplates allowing for an 85% LTV, with a maximum of 25% being related to “business operating expenses”, an increase from the original iteration, which allowed only a 75% LTV when business operating expenses were included in the transaction.
A refinancing project defined by a fixed asset with an appraised value of $1,000,000 with qualified debt totaling $750,000 can now access $100,000 to use for eligible business operating expenses in addition to the amount being refinanced within the new program parameters, whereas before, the LTV requirement of 75% would have prevented that small business from being able to include business operating expenses in the project at all.
These are significant enhancements to the regulatory framework, and will allow wider use of the benefits of the 504 for eligible debt refinancing projects. With the issuance of a Final Rule yet pending, further developments remain possible. Our compliments to SBA for the serious consideration given to industry comments.