Last week, Small Business Administration made a small effort to
loosen up its lending restrictions for its SBA 504 loan program and allow business owners to refinance their
existing debt and improve their cash flow. However, the small business owners must use the new money to expand
under this new policy. Now everyone wonders how many business owners are brave enough to expand in this
For those of you who don't know what SBA 504 program is, you can
go to our website or our blogs to learn more. SBA 504 is designed to stimulate community development and generate
new jobs. It is the least expensive and long term form of financing for business owners to typically purchase fixed
assets, buildings and properties with minimum down payment. The typical structure of SBA 504 loan involves 3
parties. First a bank or lender originates the loan and approves it first, and is responsible for the first trust
deed position of 50% of total loan amount.
Then the local Community Development Corporation (CDC)
participates for the second trust deed position of 40%. Small Business Administration (SBA) is the final party that
guarantees 100% of the loan to both lenders. SBA does not lend money. The new refinancing policy only applies to
the second deed portion of the SBA 504 loan. It makes it easier for CDC to deal with expansion projects and give
additional benefits to borrowers.
There are experts that are disappointed with this new policy and
restriction of SBA 504 loan. Not that many business owners want to expand in this economy
and those businesses that want to lesson their debt service won't be able to take advantage of the below
market interest rates that SBA offers. Of course if Uncle Sam wants to truly stimulate lending, SBA should
lift all these restrictions on refinancing.