Can a 504 refinance include operating expenses?

Yes, but only in a debt refinance without expansion. The project can include Eligible Business Expenses (13 CFR 120.882(g)(6)(ii); SOP 50 10 8.1, Sec. C, Ch. 1, Para. C.10).

What qualifies

Eligible Business Expenses are payments for Operating Expenses or Other Secured Debt.

• Operating Expenses were incurred but unpaid before the 504 application, or will come due within 18 months after it. Examples are salaries, rent, utilities and inventory. Capital expenditures are excluded.
• Business credit cards and lines can count if they are in the name of the small business and used only for business. Personal purchases must be identified and deducted.
• Other Secured Debt must be secured by the same Eligible Fixed Assets for at least 6 months. It must be current for the prior 12 months, and it cannot be for capital expenditures.

The limits

• Cash from the project must exceed the payoff of the Qualified Debt.
• The project is capped at a 90% loan to value, and adding collateral cannot raise that value.
• Each expense must be itemized. A gross figure is not acceptable.
• You and the Certified Development Company (CDC) must certify the funds will cover Eligible Business Expenses.
• On request, you must substantiate the use with bank statements, paid invoices, cleared checks or similar records.

When expenses are included, the only fixed assets SBA will accept as collateralcollateralProperty a lender can take and sell if a loan is not repaid. are those securing the Qualified Debt (13 CFR 120.882(g)(16)).