Helping borrowers secure lower interest rates on their owner-occupied commercial real estate isn’t just good business — it’s a game-changer for their financial health and your lending portfolio. The SBA 504 refinance programs empower you to provide clients with long-term, fixed-rate solutions while generating new lending opportunities. It’s a win-win for everyone involved.

What is the SBA 504 Refinance Program?

The SBA 504 refinance options are part of the U.S. Small Business Administration’s 504 loan program, designed to assist small businesses with fixed-rate financing for major fixed assets. The two refinance programs, 504 Refinance and 504 Refinance with Expansion, allow owners to refinance existing commercial real estate loans and realize improved cash flow as a result.

Key Benefits

1. Low Interest Rates: The 504 program offers long-term fixed interest rates, typically lower than conventional loans.
2. Cash-Out Option: Borrowers can refinance eligible commercial real estate debt and get cash out for business expenses such as payroll and utilities, pay off a business line of credit or credit card, and refinance other eligible debts secured by the commercial property.
3. Extended Terms: With terms up to 25 years, monthly payments become more manageable, improving cash flow.
4. Loan-to-Value (LTV): The program allows up to 90% LTV for refinancing, helping businesses retain equity while reducing financial burdens.
5. Refinance Existing SBA Debt: The refinance options allow for the refinance of existing 504 or 7(a) debts under certain conditions.

Eligibility Criteria

The operating business does need to meet general SBA requirements. A few key requirements include ensuring it is a for-profit business located in the United States and meets SBA’s small business size standard. (The tangible net worth should not exceed $20 million and the two-year average net income should not exceed $6.5 million.) Also, each SBA 504 loan financing or refinancing commercial real estate must be 51% or more occupied by the borrowing operating business. In addition, there are some requirements specific to a 504 refinance project.

Additional Refinance Requirements

• At least 75% of the proceeds of the debts to be refinanced must have been used for 504 eligible purposes, such as purchasing or constructing owner-occupied commercial real estate.
• 100% of the debt to be refinanced must have been for the benefit of the operating business, not any other affiliated business or individual.

504 Refinance

This program provides a business with the opportunity to refinance existing commercial real estate debt meeting the 75% test, as well as cash out on some of the equity existing in the property. This can include refinancing existing SBA 504 or 7(a) debt as long as a lowered payment will be achieved. The total LTV can now go up to 90%, without any cap on the amount of cash out for eligible business expenses (EBE). The cash out for EBE can include funds for business operating expenses such as employee salaries, utilities and marketing expenses, as well as pay off existing business credit cards or lines of credit. A recent improvement is that the EBE can also include the payoff of debts secured by the commercial property, but used for business operating expenses and not meeting the 75% test.

Key Points

• Debt refinance with cash out, up to 90% LTV.
• The operating business needs to have been operating and generating revenue for two or more years and project debt service coverage.
• Commercial real estate debt being refinanced needs to be on permanent terms and in place for at least six months.
• Cash out can’t fund any equipment purchase, property renovation/construction or fund any business acquisition. It’s limited to funding business-operating expenses or debts used for business-operating expenses.
• Generally, on-time payments for debts proposed for refinancing 504.

504 Refinance with Expansion

This program provides a business the opportunity to refinance existing commercial real estate debt meeting the 75% test, and utilize the existing equity to help fund a planned expansion. The total loan to value can go up to 90% but may be lower if the business has less than two years of operating history or the property has limited use. The refinance amount is capped at the amount equal to the expansion dollars. For example, if a business needs $1 million to fund an addition to its existing commercial property, it can refinance up to $1 million in existing commercial real estate debt. A lowered payment on the refinanced portion must be achieved as a result of the refinance if the existing debt isn’t structured with a demand or balloon feature.

Key Points

• Expansion funding with the ability to refinance existing debt, up to 90% LTV.
• There isn’t any minimum length of time the operating business has generated revenue, but it needs to demonstrate the ability to expand and project debt service coverage.
• No cash-out option available.
• Debts proposed for refinancing must have 12 months or more of on-time payments.

Why Bankers Should Leverage the SBA 504 Refinance Program

This program isn’t just a refinancing tool — it’s an opportunity to strengthen client relationships and grow your portfolio:

• Deliver Tangible Value: Help your borrowers secure lower rates, reduce monthly payments and unlock cash flow for reinvestment, demonstrating your commitment to their success.
• Enhance Client Retention: Providing solutions like SBA 504 refinancing sets you apart as a trusted advisor, fostering long-term loyalty.
• Boost Portfolio Performance: Offering fixed-rate, long-term financing benefits not only your borrowers, but also your institution’s stability and growth.

The SBA 504 refinance program is a powerful tool for small businesses to reduce costs and fuel growth. If you’re seeking a pathway to financial stability and expansion, consider exploring this option with a Certified Development Company.