WASHINGTON – Permanent changes in a key U.S. Small Business Administration (SBA) loan program will allow small businesses looking to expand to refinance their existing loans to improve cash flow, SBA Administrator Karen G. Mills said yesterday.

The holders of 504 Certified Development Company loans can now restructure eligible debt following permanent revisions contained in the economic stimulus package signed by President Barack Obama in February, formally known as the American Recovery and Reinvestment Act of 2009.

“This is one more piece of the Recovery Act that is going to have a direct impact and put more money in the hands of small business owners just when they need it the most,” Mills said in a statement. “Lower interest rates mean lower payments and less money going out the door each month in debt repayments.”

The 504 loan program, one of the SBA’s major lending programs, offers long-term loans that can be used to purchase business real estate or fixed assets, such as heavy equipment or machinery, and to expand current development projects. The program is administered through 271 certified development companies across the nation.

Legislation allows 504 program projects to include a limited amount of debt refinancing if there is a business expansion and the debt refinanced does not exceed 50 percent of the projected cost of the expansion.

Expansion would include any project that involves the acquisition, construction or improvement of land, buildings or equipment for use by small business, the SBA said.

To be eligible, the following conditions have to be met:

• The debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment, with the assets acquired eligible for financing under the 504 program;
• The existing debt was incurred for the benefit of a small business and is collateralized by fixed assets;
• The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees and other financial costs are taken into account;
• The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.

Mills pointed out that these changes are the latest in several Recovery Act provisions that have been implemented by the SBA in recent weeks.

In March, the agency temporarily raised to 90 percent the guarantee level on many of its 7(a) program loans; reduced fees on both 7(a) and 504 loan applications; and doubled to $5 million the surety bond guarantee level for small businesses competing for construction and service contracts.

In addition, on June 15 the SBA initiated a new fully-guaranteed micro-loan program for small business, with maximum loans of up to $35,000. The loans have no interest for the five-year term and payments are deferred until 12 months after the funds are drawn down.

Additional information on the U.S. Small Business Administration’s 504 loan program is available at SBA.gov.