On October 12, 2011, the SBA published its final regulations for the 504 temporary debt refinancing program. These final regulations incorporate a number of very important modifications. Those involved in the industry believe that these changes will make the program much more accessible for small businesses and also more attractive for participating lenders. The major changes include:
The “substantially all” 85%/15% requirement applies to use of the original debt proceeds for 504-eligible fixed assets, and not to the use of proceeds if that debt has been refinanced one or more times. The new regulations now call for documentation for only the current debt and lien instruments, not the entire genealogy or earlier financing.
“Current on all payments” has been redefined to mean that all payments on the debt have been made within 30 days of the due date under either the original or modified payment terms. Any modifications of payment terms must have been made in writing prior to October 12, 2011.
As long as the small business occupies at least 51% of the Rentable Property at the time of the 504 Loan application, it is irrelevant whether the occupancy requirements were met when the Project Property was acquired, constructed or renovated.
The combined Third Party Loan and 504 Net Debenture Proceeds cannot exceed 90% of the appraised value of the 504-eligible fixed assets. The Third Party Loan no longer has to be 50% of the fair market value as long as it is not less than the 504 Net Debenture Proceeds.
Eligible business expenses may be included in the refinance Project as long as there is sufficient equity – the Borrower must still contribute at least 10% to the Project. The Borrower’s application must include a specific description of the business expenses for which the financing is requested and an itemization of the amount of each expense, along with a certification as to the accuracy of this information. If the application is approved and funds are disbursed for business expenses, the Borrower must be able to substantiate the use of those funds through its business records, such as bank statements, invoices marked “paid,” cleared checks, and any other documents that demonstrate that a business obligation was satisfied with the funds provided.
If Same Institution Debt is being refinanced, it can be refinanced through either interim financing or an escrow account as the choice of the CDC, Borrower and Third Party Lender.
