Doug Nelson

Small Business Administration Brings Back Debt Refinance

Ask any small business owner what one of their primary hurdles was in the early days of their business and they will likely respond that securing funding for major assets was perhaps one of the most intimidating tasks. Entrepreneurs typically have the idea, they have the passion, but they often don’t know where to look for access to affordable methods of financing to propel their product or service off the ground.

Thankfully in Amarillo, our community has a tremendous network of local and regional banks looking to support the local economy by partnering with small business owners through a variety of financing options. That network is one of the contributing factors in a recent ranking that named Amarillo as one of the best cities to start a small business.

Additionally, the Texas Panhandle Regional Development Corporation (TPRDC), a Certified Development Company, is another key resource that entrepreneurs have available to secure financing for the purchase of fixed assets including real estate, buildings and machinery at below market rates.  

One of the key financing tools the TPRDC administers is the U.S. Small Business Administration (SBA) 504 Loan. This loan program focuses on fixed-rate financing for major fixed assets and includes financing secured from a private sector lender covering 50% of the project cost, financing from the CDC covering 40% of the project cost, and a contribution from the business owner covering at least 10% of the equity.

In 2010, in the midst of the economic recovery, the Small Business Jobs Act of 2010 temporarily expanded SBA’s use of the 504 Loan Program. This initiative allowed the refinancing of certain qualifying existing debt, but expired on September 27, 2012. Fortunately, however, on December 18, 2015, the program was reauthorized on a permanent basis and the regulations for the program have just been released.

The guidelines for the program include items such as:

  • The Borrower must have been in operation for at least two years.
  • Any refinancing under the 504 Debt Refinancing Program must include Qualified Debt, such as the acquisition of eligible fixed assets.
  • “Eligible Fixed Assets” are one or more long-term fixed assets, such as land, buildings, machinery, and equipment, acquired, constructed or improved by a small business for use in its business operations.
  • No more than 25% of the proceeds may be for business operating expenses; the rest must be for secured debt being refinanced.
  • 90% LTV limitation when refinancing qualified debt
  • 75% LTV limitation when refinancing qualified debt and business operating expenses
  • Only debt older than 24 months can be refinanced.
  • No debt past due in the past 12 months can be refinanced.       
  • Existing "government backed" loans, such as 504's, 7(a)'s or USDA loans, cannot be refinanced under this new program. This debt refinance program is only applicable to conventionally financed commercial mortgage/deeds of trust.

SBA will begin accepting applications June 24, 2016. The TPRDC staff is available to speak with Texas small business owners seeking financing options that fit within the program’s criteria. For more information, we encourage you to visit the TPRDC website or by calling (806) 331-6172.

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