David Amick – If you have a mortgage on the building your company occupies, you may be eligible for a low rate refinance program offered by the U.S. Small Business Administration (SBA) in partnership with your bank. The program is designed to improve your cash flow, and if there is enough equity in the property, allow you to take cash out for future business expenses.
This is a temporary program was first introduced in September of 2010. The initial rules of the program were so stringent that it failed to find a market. With time running out, the program ends in September of 2012, the SBA listened to the industry and made a number of changes that now make it viable. The new rules went to effect in October and already activity has been brisk.
This limited time refinancing program is offered through the SBA’s 504 loan program. In a typical structure the bank refinances half of your outstanding mortgage balance and the SBA the other half. The advantage to you as a business owner is that the half the SBA finances is at a low fixed rate. The SBA’s November rate for the program was 5.1% fixed for twenty years. Depending on your current mortgage rate, you may also be able to negotiate a lower rate on the bank’s portion of the refinancing, further improving cash flow.
The advantage to your bank is that they lower their exposure on the property by reducing their loan to value (LTV). The 504 program allows the bank to continue being in a first lien position on the property while the SBA takes a second lien position. As an owner you end up with two loans, one to the bank and the other to the SBA.
The SBA’s 504 program is funded through the sale of U.S. Government backed debentures (bonds). The 504 debentures are offered to investors for either ten or twenty year terms. With the backing of the U.S. Government the debenture sales are able to attract low fixed rates that are used to fund the 504 program.
Should you wish to learn more about the opportunity discussed in this article, please contact me at 317-613-3504. Premier Capital is proud to be a sponsor of Indiana Companies to Watch and we salute you and the impact of your business on the Indiana economy.