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No more 504 refi's for small business mortgages after Sept. 27

The Small Business Administration's 504 refinancing program will expire on Sept. 27 if Congress does not act quickly. Advocates for the program have little hope that the measure will get any attention before the November election, though they are cautiously optimistic that the lame duck session will see the program renewed. As one proponent said, "The need is still there."

The need has been there, in fact, since the real estate boom went bust. Small businesses that owned their own real estate were faced with the same predatory lending practices that sank so many homeowners. When the 504 refinancing program came around two years ago, small business owners saw a little light at the end of the tunnel.

The SBA's 504 program allows small businesses to obtain loans from a combination of nonprofit certified development companies and conventional lenders. The government guarantees the nonprofits' loans. Businesses can finance real estate purchases or developments and other similar projects with the loan.

The refinancing component was introduced two years ago and worked the same way. The benefits to the businesses were lower interest rates and no looming balloon payments like the ones attached to their original mortgages. Under the best of circumstances, businesses could pull equity from their properties for more working capital.

Not many businesses could take advantage of the refinancing during the first year. The SBA's focus then was helping companies with mortgages maturing within two years. That and other restrictions kept the number of participating businesses to 307 over the first 12 months. In October 2012, though, the SBA reconsidered some of the restrictions, and more businesses received the help they needed.

In that first year, the 307 refinancing loans totaled $255 million. By Sept. 14, 2012, almost 2,300 businesses had taken out $2.1 billion in 504 program refinancing loans. The number could top $2.5 billion before the SBA is forced to close it down.

Source: The Business Journals, "SBA's 504 refinancing program ends for commercial mortgages," Kent Hoover, Sept. 18, 2012

Our firm helps small businesses with commercial real estate financing issues similar to the one discussed in this post. If you would like to learn more about our practice, please visit our Maryland real estate services page.

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