Can a 504 project refinance debt as part of an expansion?
Short answer
Yes, and existing debt up to 100% of the expansion project cost can be refinanced if SBA's substantial benefit and other conditions are met. See 13 CFR 120.882(e). Acquiring, building or improving land, buildings or equipment counts as expansion.
Yes. 13 CFR 120.882(e) and Section C, Chapter 1, Paragraph C.11 of SOP 50 10 8.1 allow refinancing inside a 504 expansion project. Here, existing debt up to 100% of the expansion project cost can be refinanced if SBA's substantial benefit and other conditions are met. Expansion means a project that acquires, constructs or improves land, a building or equipment for the applicant's use.
Conditions in the SOP
- 75% or more of the existing debt's proceeds bought a 504-eligible fixed asset, with the rest benefiting the business.
- The debt is collateralized by fixed assets, and those 504-eligible assets also secure the 504 loan unless SBA waives it.
- The debt was incurred for the same small business that will incur the new project costs.
- The financing covers only refinancing or project costs.
- The refinance provides a substantial benefit.
- You have been current for at least 1 year before SBA approves the 504 loan.
- The 504 financing gives better terms or rate than the existing debt.
Details brokers ask about
The refinanced debt need not be for assets at the same location, if both operations share a NAICSThe federal code system that sorts businesses by industry. code. One or more loans can be included. Prepayment penalties and financing fees required by the debt instrument can be added. Capital leases and land contracts may be eligible, but an operating lease is not.
A Premier Certified Lenders Program (PCLP) Certified Development Company (CDC) cannot use delegated authority to refinance same-institution debt. That request goes to SBA.
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