Can a 7(a) loan refinance a 504 loan?
Short answer
Yes, in two cases (SOP 50 10 8.1, App. 14, Para. A). Both the Third Party Loan and the 504 loan must be refinanced. Or the Third Party Loan is paid off and the 504 loan is part of a larger expansion.
Yes, in two situations (SOP 50 10 8.1, App. 14, Para. A). The loan can go through delegated or non-delegated processing. Appendix 14's conditions must be met, and one of these must be true:
- Both the Third Party Loan and the 504 loan are being refinanced, or
- The Third Party Loan is paid in full, and the 504 loan needs refinancing as part of a larger expansion or renovation.
What you cannot do
A 7(a) lender may not refinance only the Third Party Lender's loan on an existing 504 project. The 504 chapter says a Third Party Loan may not be refinanced with an SBA-guaranteed loan (Sec. C, Ch. 1, Para. C.11.b).
Costs
Any applicable 504 prepayment penalties apply. Appendix 14 does not waive them.
Tests that still apply
The debt must be current for at least the last 12 months or the life of the loan, whichever is less. The new payment must be at least 10% less than the existing installment amounts in aggregate, unless the debt is an excepted type. The lender must identify the refinancing in the SBA Terms and Conditions, with the loan number and dollar amount of the SBA debt.
Refinancing inside the 504 program
A 504 project can also refinance an existing 504 loan, on the same two conditions. Under the expansion rule, the 504 loan must be refinanced in whole. The Certified Development Company (CDC) must notify the existing lender in writing at least 10 business days ahead (Sec. C, Ch. 1, Para. C.11.b).
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