SBA 504 Debt Refinancing

The SBA 504 loan program offers an attractive refinancing program for real estate and equipment loans. Borrowers may qualify for up to 90% financing on real estate and equipment with cash out (funds over and above the loan balances to be refinanced) that can be used for other business expenses.  See the qualifying criteria below and contact a BLP professional to discuss your eligibility for the program.

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Eligibility Questions:

All Questions must be answered “Yes” to qualify for the SBA Debt Refinancing program.

  • Was the debt to be refinanced incurred more than two (2) years ago?
  • Has the business been in operation for at least two years?
  • Has the loan been current for the past year with no payments having been deferred or over 30 days past due?
  • Was at least 85% of the debt being refinanced used for 504 eligible purposes (i.e. commercial real estate and equipment)?
  • Does the small business in question employ one FTE (full-time equivalent) for every $65,000 of SBA financing that is being applied for (or meet a public policy goal – BLP can assist in identifying a qualifying goal)?
  • Does the business currently occupy at least 51% of the real estate being refinanced?


Financing Structure:
  • The amount of total financing cannot exceed 90% of the fair market value of the building(s) and/or equipment securing the loan, or the outstanding principal balance of the debt being refinanced, whichever is lower. Additional collateral can be pledged to supplement shortfall on building(s) and/or equipment being refinanced.
  • If there is equity in the building(s) and/or equipment used to secure the debt, Borrower can take cash out to use for business purposes. Possible uses include 1) paying down lines of credit; 2) expenses incurred before loan approval that is unpaid; and 3) expenses planned for the next 18 months (i.e. salaries, utilities, and inventory).
  • Participating Bank loan amount must be at least the same as the SBA 504 loan amount.
  • Borrower contribution must be at least 10% of the appraised value of the collateral securing the loan (can include non-business assets).
  • The borrower’s contribution could be satisfied through its equity in the collateral being offered to the SBA.
  • Building(s) and/or equipment being refinanced must be appraised before closing (within one year of loan approval).

Example Case Study

The Request -

  • Building appraises at $1 million.
  • Business has a $400,000 mortgage to Refi.
  • Business would like to include eligible operating expenses.         

Structure -

  • Typically, financing cannot exceed 90% LTV but with operating expenses included this example it is limited to 85% LTV or $850,000.
  • Mortgage can be refinanced at the $400,000
  • The maximum amount of business expenses that can be financed is 25% LTV or $250,000.
  • Total eligible financing is $650,000 financed by bank and SBA at $325,000 each.

Additional Program Regulations:
  • No refinancing of existing SBA 504 projects, SBA 7(a) loans, USDA loans, or any other loans with a federal guarantee.
  • No refinancing where the creditor is in a position to sustain a loss and refinancing would cause a shift to SBA of all or a portion of that potential loss.
  • The program is strictly for debt refinancing and cannot involve an expansion of the small business: no acquisition, construction or improvements that would change the footprint of the building. Upgrades/renovations to an existing facility without altering the footprint of the building may be included. Note: There is a ‘partial refi’ SBA 504 program where these situations may be appropriate.
  • The debt being refinanced may consist of one or more commercial loans.

Other Benefits
  •  As long as financing requests include ‘Qualified Debt’ it can also include other secured debt under specific guidelines.

  • The financing request can include funds for eligible business expenses either already expended or planned in the next 18 months.  Qualified business expenses include but are not limited to salaries, rent, utilities, and inventory.

Need More Information?

The Business Lending Partners staff will gladly address your questions on refinancing regulations.  For more details, please contact:

Carolyn Engel

(262) 898-7420


SBA 504

February 2018

20-Year Fixed Rate:


10-Year Fixed Rate:




  Borrower Benefits
  • Lower Down Payments Required
    The borrower may provide a cash down payment as low as 10% of the total funding needs, allowing them to save their cash for other business needs.

  • Fixed Rates on SBA 504 Loan
    The borrowers do not have the risk of an increase in the interest rate on the SBA loan making long-term planning for the business easier because borrowers know the amount of their mortgage payments for the next 20 years.
  • Long Term
    SBA 504 loans are made for 10 or 20 year terms. Longer terms results in lower monthly payments for the borrower without the concern of balloon payments due prior to the loan maturity.

  • Low Interest Rates
    The long-term, competitive interest rate results in savings over the life of the loan.

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 Eligible Use of Funds

  • Land Purchases
  • Site Improvements
  • Existing building purchases, expansions or renovations
  • New construction
  • Equipment purchase and installation
  • Projected related costs such as furniture and fixtures, title insurance fees, legal fees, appraisals, environmental reports, architects fees, survey costs, points on bridge loans, etc.
  • Refinancing – Limited debt refinancing is permitted but must involve a business expansion where the refinance may not exceed 50% of the project costs (other restrictions apply).
Ineligible Use of Funds
  • Working Capital
  • Inventory
  • Vehicles licensed to be on the roads (trucks, cars)
  • Stock purchases

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Eligible Businesses
  • Must be a for-profit business
  • Size Standard:
    The business must be small as defined by SBA as those businesses with a net worth below $15 million and an average net profit (after taxes) for the last two years of below $5 million.  If these standards are exceeded, the business can still qualify for the program by meeting other SBA size standards based on either number of employees or annual revenue, depending upon the industry.
  • Citizenship Requirement: 
    The business owner(s) must be U.S. Citizen(s) or resident alien(s) with permanent resident status.

  • Occupancy Requirement: 
    For funding projects that include real estate, the business must intend to occupy at least 51% of the 'Rentable Property' for existing structures or at least 60% of the 'Rentable Property' initially (and 80% over time) for new construction projects.  "Rentable Property" is the total square footage of all buildings or facilities used for business operations, which may include exterior space (except parking areas) that is actively used in Borrower's business operations.
  • Job Requirements and Waivers:
    The small business must meet the job creation/retention requirement or qualify for a waiver. The general requirement is one job per $65,000 in SBA funding for typical 504 loans, or one job per $100,000 for small manufacturers.  If a business does not meet the job creation/retention goals of the SBA, they may qualify for the program under one of the other goals of the program found here.
Ineligible Businesses
  • Non-profit businesses
  • Lending institutions
  • Insurance institutions
  • Gambling organizations
  • Businesses of a prurient nature
  • Businesses of restricted nature that exclude based on race, sex, or creed
  • Speculative businesses/development
  • Businesses located in a foreign country

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 SBA Loan Fees and Pre-Payment Information

  • Approximately 3.2% administrative fees are financed in the SBA loan amount.
  • $2,500 for legal fees for the loan closing are financed in loan amount.
  • Participating bank is charged a 0.5% senior lien holder fee.
  • Out-of-pocket costs are charged directly to the customer, i.e. title insurance for closing, lien searches, recording the mortgage, etc.

‚ÄčThe majority of the fees are collected at the time of loan funding and financed in the SBA 504 loan amount.  A $2,500 fee is collected at the time of loan approval and applied towards closing costs.  Ongoing servicing fees are reflected in the 'blended interest rates'.

Discounts offered to Veterans!  BLP offers the following discounts on SBA 504 loans to businesses at least 51% owned by military veterans:

Loans less than $1.5MM:  0.5% of processing fee is waived (up to $7,500 savings)

Loans more than $1.5MM:  0.25% of processing fee is waived (up to $12,500 savings)


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SBA 504 Pre-Payment Information

During the first half of the SBA 504 loan term, a prepayment penalty exists.  Therefore, it is recommended that if the business wants to pay down some of its long term debt, that they prepay the bank portion of the financing package. The SBA loan cannot be partially prepaid.  The prepayment penalty declines every six months based upon the remaining principal balance of the loan and disappears altogether a 20-year loan reaches 10 years and a 10-year SBA loan reaches five years.

Guidelines regarding prepaying SBA 504 loans are as follows:

  • Company needs to notify BLP, in writing, at minimum 45 days prior to the date they would like to prepay their SBA 504 loan.
  • An SBA loan can be prepaid any month, however, it is recommended that if the borrower wishes to prepay their loan it is done on a six month interval to save on interest payments.
  • Prepayment penalties may apply. Prepayment penalty levels decline at six (6) month intervals and are eliminated once half of the term has passed.
  • The prepayment penalty is an amount equal to the outstanding principal balance plus accrued interest and the prepayment penalty.
  • Generally, the prepayment penalty equals 100% of the interest lost in the first year of the loan, 90% of lost interest in the second year, 80% the third year, etc.  After the tenth year, this becomes 0%.
  • Upon the funding of an SBA loan, the customer is provided a prepayment schedule which provides the dollar amount of the penalty for prepayments every sixth month until the penalty no longer applies.

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