A little over a week ago, the Small Business Administration (SBA) published an obscure document with game-changing implications: businesses now can refinance their 7(a) loans into a 504 loan. Keep reading to learn more.
The document in question is called “Interim Final Rule with Request for Comments (IFR): Debt Refinancing in the 504 program.”
While several provisions are outlined, one of the most important changes is that now 504 loans may be used to refinance federally guaranteed loans, including 7(a) loans and other 504 loans.
If this sounds too abstract, a couple of numbers can give you some perspective. Interest rates for 7(a) loans are about 7%; by contrast, the rates for 504 loans are around 3%. This difference translates into savings of thousands of dollars each month for businesses with loans of one million dollars or more.
Requirements to Refinance Your 7(a) Loan
As is often the case with loans and refinancing, there is some small print that you need to read. In order to qualify for 504 refinancing, debts must meet certain requirements:
- At least 85% of the proceeds must have been used for 504-eligible purposes (fixed assets that promote job growth and job creation).
- The debt being refinanced was incurred no less than six months before the application date.
- There must be “substantial benefit to the borrower.” This means that the new installments must be at least 10% less than the current installments after considering prepayment penalties, financing fees, and other financing costs.
- If the loan being refinanced is a 7(a) loan, the Community Development Corporation (CDC) must verify that the lender is either unwilling or unable to modify the current payment schedule.
- Also for 7(a) loans: if either the third party lender or the CDC is a 7(a) participant lender, its same lender debt will be eligible for 504 refinancing only if the lender can’t modify the terms of the existing loan because the loan has been sold on the secondary market and the investor won’t agree to the modified terms.
No doubt, this is a great opportunity to reduce your business debt and give a welcome boost to your bottom line. If you are interested in refinancing your 7(a) loan or want to learn more about the process, don’t hesitate to contact the knowledgeable experts at Gellyfish Commercial.
Gellyfish: Certainty of Execution in SBA Loans
Looking to refinance a 7(a) loan in California, or anywhere in the United States? Gellyfish is here to help.
Whether you opt for conventional loans or SBA loans, Gellyfish offers financing with the certainty of execution you need to take your business to the next level.
Contact us today by email (email@example.com), telephone (877-800-4493), or social media (Facebook, Twitter, LinkedIn), to schedule a free consultation or to learn more about our full range of financing options.