SBA Launches Temporary Refi Program for Commercial Mortgages


Industry analysts have been sounding the alarm for months now about high volumes of commercial mortgages coming due over the next couple of years that borrowers may find difficult to refinance due to plummeting property values and high loan-to-debt ratios.

But small businesses who find themselves in this situation are getting a helping hand from the U.S. Small Business Administration (SBA). The federal agency is rolling out a temporary program that will allow small businesses to refinance their mortgage debt with a 504 loan from SBA.

The new refinancing loan is structured like SBA’s traditional 504, with borrowers committing at least 10 percent equity and working with third-party lending institutions and SBA-approved Certified Development Companies (CDCs) in the standard 50 percent/40 percent split. A key feature of the new program is that it does not require an expansion of the business in order to qualify.

Small businesses facing maturity of commercial mortgages or impending balloon payments before December 31, 2012 may be eligible for the program. SBA will begin accepting refinancing applications on February 28, 2011. The program, authorized under the Small Business Jobs Act, will be in effect through September 27, 2012.

The new refinance program is only for businesses that can demonstrate that their loans are current and that they have successfully made all required payments over the last 12 months. A new, independent appraisal is required for all projects seeking assistance through the program.

“The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years,” said Karen Mills, SBA administrator.

Mills added, “As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt. This temporary program is another tool SBA can provide to help these small businesses remain viable and protect jobs.”

The SBA initially will open the program to businesses with immediate need due to impending balloon payments before December 31, 2012. The agency says it will revisit the program later and may open it to businesses with balloon payments due after that date or those that can demonstrate a “strong need” for assistance.

“We are making this initial restriction to make sure our funding goes first to small businesses with the most need,” explained Steve Smits, SBA associate administrator of capital access.

Borrowers will be able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.

Congress authorized SBA to approve up to $15 billion in loans under this program, $7.5 billion in 2011 and another $7.5 billion in 2012. Together with the first mortgage, the agency says this temporary program will provide up to $33.8 billion of total project financing.

The program is expected to benefit as many as 20,000 businesses. SBA has hired over 35 new loan processors to handle the increased workload at their Sacramento Loan Servicing Center.

The National Association of Development Companies (NADCO) – the trade association representing the nation’s CDCs – has been monitoring the release of new SBA regulations very closely.

NADCO president, Chris Crawford, commented, “We have been receiving at least 10 inquires a week since the refinance provision was announced as part of the Small Business Jobs Act in September 2010. Small businesses and banks have been clamoring to take advantage of this new, more affordable refinance option as a means to hold on to critical business properties. In many cases, this will mean saving a thriving business from closure if it could not refinance maturing debt. “

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