What Is the 504 Refinancing Program?


In addition to the standard 504 loan program, the SBA also now offers the 504 refinancing program. These loans are important tools that allow business owners to refinance existing debt into a 504 loan. Note that you cannot refinance an existing 504 loan, and all loans refinanced with the program must be a zero subsidy. So, how does the program work?

First, the debt being refinanced must be a commercial loan. It cannot be any type of SBA loan. Second, 85% of the proceeds of the original business loan must have been used for purposes that would have been approved under a 504 loan. That means it must have been used for fixed assets, and cannot have been used for working capital, or paying off other debt.

The other 15% must have been used to benefit the company in some way. The original debt (and any previous refinancing of that debt) must be at least two years old before you can apply for 504 refinancing. Currently, business owners must make a 15% contribution (down payment).

Next, the loan must have existing eligible assets to secure it – they are used as collateral in the refinance. Additional equity built up by loan payments can be used to pay any business expenses that might be eligible, as well. This includes using some of the refinancing proceeds as working capital.

Startup businesses are not eligible, and the company must have been in business for at least two years prior to the refinancing. Finally, the refinancing cannot be used for business expansion. However, the business can apply for a standard 504 loan to cover expansion and growth-related needs.

504 refinancing loans are very similar to standard 504 loans, and will require that you work with both a CDC and a private lender. In addition to opening up working capital for the company, refinancing existing debt can make good sense for a number of other reasons, including:

  • Being able to lock in below market rates on the debt

  • Being able to get out from under balloon payments

  • Being able to get out from under high interest rate loans

  • Being able to use the proceeds to hire more staff

  • Being able to finance business expense and save cash for mission-critical considerations

Of course, the 504 refinancing program may or may not be right for your needs. You can find more information about the program, as well as the final rule issued by the SBA in mid-2018 here.