Guide to Recent Changes in the SBA 504 Loan Program as of July 6, 2009

This guide and the attached PDF will be updated as the SBA implements the Recovery Act changes to the 504 Loan Program.

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

Limited Debt Refinancing

• Applicant must be applying for new funds for a 504 eligible expansion-acquisition, construction, or improvement of owner-occupied commercial real estate and/or machinery and equipment.
• Amount to be refinanced may not exceed 50% of the amount of the expansion.
• Loans being refinanced must have been used for a 504-eligible purpose and meet other 504 eligibility requirements.
• Amount may include existing SBA loan amounts subject to loan terms and prepayment penalties.
• Funds originally used for ineligible purposes, such as working capital, cannot be refinanced even if the loan is secured by real estate.
• After refinance, the new loan payment on the refinance portion must be at least 10% lower than the existing payment after taking into account prepayment penalties and financing costs.
• Borrower must have been current on all payments of the existing debt for not less than one year.

Example: Borrower wishes to construct a $1,000,000 expansion onto his existing property. He may qualify to refinance up to $500,000 in debt that was used to acquire or improve his current building as part of a new, $1,500,000 loan package. Based on the proposed new 504 terms, the monthly payment on the $500,000 to be refinanced must be at least 10% lower than the current monthly payment.

Refer to SBA Notice 5000-1108 [1] for the complete details: http://www.sba.gov/idc/groups/public/documents/sba_program_office/bank_5000-1108.pdf [1]

Job Creation/Retention Goal Relaxed

To be eligible for a 504 loan, applicant businesses must meet at least one of many job creation, community development or public policy goals through their expansion project. Projects are not limited by their total cost, but the goals met determine the maximum amount of the 504 loan in the two-loan structure. Your local Evergreen loan officer will determine which goal will work for your transaction.

The job creation/retention goal has been permanently increased from one job for every $50,000 financed as part of the 504 portion to one job per $65,000. There continue to be exceptions to the job creation/retention goal, including one job per $75,000 financed for projects located in Special Geographic Areas (Alaska, State-designated enterprise zones, empowerment zones, enterprise communities, and labor surplus areas) and one job per $100,000 financed for manufacturers.

Meeting any public policy goal waives the job requirement due to Evergreen's overall strong job creation history.

Temporary Fee Reduction

For loans authorized after February 17, 2009 two 504 program fees have been temporarily eliminated through calendar year 2009, or until the funds are exhausted. The fees are the 0.5% Participation Fee to the lender and 1.5% CDC Processing Fee to the borrower. Program fees are always financed into the loan to help businesses keep more cash on hand for working capital, but this reduces the program fees to 0.65% of the 504 portion of the financing to help even more.

ENERGY INDEPENDENCE AND SECURITY ACT OF 2007

New Energy Efficiency Goals

The Energy Independence and Security Act added new energy efficiency goals that allow higher loan limits without any job creation requirements. Projects that use sustainable design, such as LEED standards, to purchase, construct, or remodel a building now qualify for 504 loans of up to $2,000,000 or 40 percent of total project costs. Projects that reduce energy consumption by at least 10 percent or produce renewable energy, micropower or renewable fuels can obtain a 504 loan of up to $4,000,000 or 40 percent of total project costs.

All these goals can all apply to new construction or existing buildings. The sustainable design and renewable energy/fuel goals can apply to new or established businesses. The energy reduction goal cannot apply to a startup business. 

For more details these new benefits call 800.878.6613 to be directed to your local Evergreen loan officer.