Small Business Owner-Occupied Commercial Real Estate Refinancing

The Obama Administration proposed legislation which will allow small businesses to refinance existing, qualified, owner-occupied commercial real estate mortgages. This is a major expansion of the SBA 504 loan program which will allow borrowers with either existing 504 loans or conventional commercial real estate loans to apply for refinancing through the 504 program.

Continue the Successful Recovery Act Programs for Fee Relief through Fiscal Year 2010

Continue Borrower Fee Eliminations: In addition, Recovery Act funding allowed SBA to eliminate borrower fees. These fee reductions have helped free up capital for small businesses to use in their business.

WASHINGTON--(BUSINESS WIRE)--Regulations published today by the U.S. Small Business Administration will create a secondary market guarantee program to provide greater liquidity for lenders and expand access to capital for small businesses.

Funded through the American Recovery and Reinvestment Act, the new program would encourage sales into the secondary market of the "first mortgage" portion of small business financing made possible through the SBA's 504 Certified Development Company (CDC) program. As a result of the economic recession and the disruption in the credit markets, there has been a significant decline in secondary market activity for 504 first mortgage loans.

"This new program will stimulate activity in the secondary market, ensuring lenders have a place to sell first mortgage loans on their books and in turn have liquidity to make more loans to small businesses," SBA Administrator Karen Mills said. "This is another tool in our Recovery toolbox that will expand access to the capital small businesses need to drive economic growth and create jobs."

Each year SBA reviews the fees payable to SBA by 7(a) participating lenders (Lenders), certified development companies (CDCs), and borrowers to determine if they are sufficient to cover the estimated costs of the 7(a) and 504 loan programs. The purpose of this notice is to announce the fees effective October 1, 2009, for both programs for loans approved during FY 2010.

For 504 loans approved on or after October 1, 2009, the "Annual Fee" paid by borrowers on an ongoing basis to SBA will be increased from zero percent to 0.389 percent (38.9 basis points) of the outstanding balance of the 504 loan. The 504 Annual Fee is imposed under Section 503(b)(7) of the Small Business Investment Act.

The SBA has recently enacted new public policy goals under the SBA 504 loan program for projects that improve energy efficiency. SBA 504 loans can be used for the purchase, renovation or construction of owner occupied commercial real estate and for the purchase of long term equipment.           

Two of the new Public Policy Goals allow for qualifying small businesses to receive up to $4 million on the SBA portion of the financing (in most cases, 40% of the project cost). SBA places no limit on the bank portion of the financing (in most cases, 50% of the project cost).

• Projects that will reduce the energy consumption of the business by at least 10%. This may be accomplished by improving efficiency in a new or improved location through the use of energy efficient HVAC, lighting, insulation, appliances, alternative fuel use or other energy efficient improvements.

• Real Estate or Equipment Projects for businesses that will purchase and use renewable energy products. Some examples are hydropower, geothermal, solar, wind or ocean thermal (wave and tide generated power).

The passage of the American Recovery and Reinvestment Act of 2009 in February included several enhancements for the SBA 504 loan program. The stimulus bill appropriates its funding for expenditure in FY 2009, but if it is all not used, it makes the money available through FY 2010.

• Reduced fees - Two fees have been temporarily eliminated:

   ° Lender participation fee (0.5%)

   ° CDC processing fee (1.5%)

** This will make obtaining an SBA 504 loan even more attractive and more affordable for business owners.