In a bid to help stave off the harmful effects of a possible rise in commercial real estate foreclosures, the Small Business Administration unveiled a new program yesterday extending loan guarantees for refinancing commercial mortgages.
BizSense recently covered the potential hardships some property owners could face as their commercial mortgages come due this year.
“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 SBA Administrator Karen Mills in a statement.
“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.”
The temporary program extends the SBA’s traditional 504 loan to property owners with a debt coming due before the end of 2012. The traditional 504 loan program is designed to provide small businesses with long-term, fixed-rate financing to acquire assets for expansion or modernization. The new temporary program does not require any expansion.
Under the existing program, the borrower contributes 10 percent equity. A first mortgage is issued by a private-sector lender covering up to 50 percent of the loan, and second mortgage is secured for the rest. That third portion is 100 percent backed by the SBA.
From the release:
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. Loan proceeds may not be used for other business expenses. 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 both fiscal 2011 and 2012). Together with the first mortgage, this temporary program will provide up to $33.8 billion of total project financing. Additional fees charged to the borrower will cover the cost of this refinancing program and as a result no subsidy will be needed. The program is expected to benefit as many as 20,000 businesses.
In a bid to help stave off the harmful effects of a possible rise in commercial real estate foreclosures, the Small Business Administration unveiled a new program yesterday extending loan guarantees for refinancing commercial mortgages.
BizSense recently covered the potential hardships some property owners could face as their commercial mortgages come due this year.
“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 SBA Administrator Karen Mills in a statement.
“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.”
The temporary program extends the SBA’s traditional 504 loan to property owners with a debt coming due before the end of 2012. The traditional 504 loan program is designed to provide small businesses with long-term, fixed-rate financing to acquire assets for expansion or modernization. The new temporary program does not require any expansion.
Under the existing program, the borrower contributes 10 percent equity. A first mortgage is issued by a private-sector lender covering up to 50 percent of the loan, and second mortgage is secured for the rest. That third portion is 100 percent backed by the SBA.
From the release:
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. Loan proceeds may not be used for other business expenses. 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 both fiscal 2011 and 2012). Together with the first mortgage, this temporary program will provide up to $33.8 billion of total project financing. Additional fees charged to the borrower will cover the cost of this refinancing program and as a result no subsidy will be needed. The program is expected to benefit as many as 20,000 businesses.
This has great potential for refinancing debt, but as expected comes with caviats to remember ! The debt has to be maturing before 12/31/2012…also, the actual debt being refinanced must be two(2) years old at least……the business entity must be two years in operation……BUT…great thing about this is the debts can be conventional commercial loans, not previous SBA loans….this will include a lot of notes coming due from 4 or 5 years ago and the banks do not want to renew many of these, so business owners may have real concern. Also, loans up to 90% can be done with… Read more »
The deal is even better than explained since if your property value has dropped to less than the amount owed you can pledge addtional fixed asset collateral to increase the financing to 100% of the debt currently owed as long as at least 85% of the loan was for eligible 504 costs such as real estate and long term equipment. The current rate on the 504 loan is close to 5% fixed for 20 years so it is a great way to hold down your borrowing costs and to protect against rising interest rates.