SBA Considering Changes to 504 Loan Program

Phoenix Business Journal by Lynn Ducey

Small business owners here in Phoenix are keeping their eyes and ears on Washington.

That’s because recently, members of the House Committee on Small Business discussed the value of some of the Small Business Administration loan programs, including a two-year experiment that allowed the SBA 504 program to be used in the refinancing of existing commercial loans. Previously, a 504 loan could only be used for the purchase of new equipment or property.

SBA statistics show that there have been 61 Arizona 504 loans valued at $42.5 million made this year, including nine refinancing loans valued at $5.45 million, according to officials at theArizona SBA headquarters.

Bob McGee is the president and CEO of Phoenix-based Southwestern Business Financing Corporation, which specializes in SBA loans to small business.

McGee, who closely follows SBA issues, said there have been few refinancing loans made recently in Arizona, because of the plunging value of real estate.

“We are in one of the worst markets in the United States. We are not as bad as Las Vegas, but we are still pretty bad,” McGee said.

As part of the 504 refinancing requirements, total loans cannot exceed 90 percent of the appraised value of the building. And because of plunging values, few properties meet the 90 percent requirement.

“Buildings are worth maybe half of what was paid for them. I can’t refinance the debt on that building,” McGee said.

Despite that, having the flexibility to use a 504 loan for refinancing remains a valuable tool. While not popular today, business owners could use this tool as the real estate market rebounds. The funds that those refi loans free up can be used to expand a business, which is the ultimate goal of the 504 loans.

source: Phoenix Business Journal

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