504 rates have continued to decline over the last several months. From a recent high in November of 5.591%, rates for the 20-year debentures have steadily decreased to 4.926% in December, 4.758% in January 2019 and 4.646% in February.
Rates for the 25 year debentures have followed suit with the December rate coming in at 4.990%, January 2019 at 4.881% and February at 4.771%. Here are recent changes to the 504 rate program.
Limited or Special Purpose Properties:
The SBA has reduced the list of Limited or Special Purpose Properties to 6 property types.
The current list includes:
- Car wash businesses
- gas stations
- hotels, motels, and other lodging facilities.
- Hospitals, nursing homes, and assisted living centers
- Marinas
- Farms, including livestock and dairy facilities
*Per SBA, this list is not intended to be “all-inclusive”, but to provide a general guide to borrowers of the types of properties which will result in an additional 5% equity injections
Passive Businesses:
SBA has clarified that businesses, such as nail salons, which rent out space to independent businesses/independent contractors, which, in turn, provide personal services, are now considered passive businesses, and not eligible for a 504 loan.
Likewise, if a business enters into a management agreement with a third-party giving sole discretion to manage the business, that business will now be considered passive and not eligible, even if the business itself would, otherwise, have been eligible for a 504 loan.
Personal Guarantees:
If the combined ownership in the real estate holding company (EPC) or the small business (OC) equals or exceeds 20%, both spouses must sign a guarantee.
SBA has also modified the personal guarantor provisions to permit the CDC to require a personal guarantee from anyone with significant influence over the operation or management of the business. This is a discretionary decision made by your local CDC.
Refinance Without Expansion:
Keep in mind that existing financing secured by eligible assets, e.g. real estate, may be financed into a 504 Loan providing protection against interest rate risk and allowing, in some circumstances, cash out to cover certain business expenses.
