504 Rates for April and May 2018

Rates for April and May of 2018 continued their slight upward trend with the April rate coming in at 5.02% and May at 5.22%. As the chart below demonstrates, even with the slight increases over the last two months, rates remain very attractive over the 20-year fixed term. And remember, SBA now offers a 25-year term to further spread out payments and improve cash flow!

There is a solution to maturing debt and/or variable rates on fixed assets: 504 Refinance without Expansion! Ordinarily, to use a 504 Loan, a small business would need to be buying/building/renovating real estate or adding capital equipment. SBA has expanded the use of the 504 with its permanent Refinance without Expansion program. Here are some critical pieces to this process:

1. Borrowers may refinance both “Qualified Debt” and “Eligible Business Expenses”.

2. “Qualified Debt” are commercial loans with 85% or more of the debt was used to acquire one or more “Eligible Fixed Assets” (land, building and/or equipment) and incurred by the small business not less than 2 years prior to application for the 504 Refinance, which debt was secured by Eligible Fixed Assets and on which debt the Borrower has been current on all payments for not less than 1 year.

3. “Eligible Business Expenses” are operating expenses incurred by the small business but not paid prior to the date of the application for the 504 Refinance, or, which will become due for payment within 18 months of the date of the application for the 504 Refinance.
-examples of Eligible Business Expenses include:
– salaries
– rent
– utilities
– inventory

Eligible Business Expenses could also include items such as repairs, maintenance or minor improvements which could be deducted as ordinary and necessary expenses on the tax return of the small business tax return.

“Debt” is not an Eligible Business Expense except credit card debt on a card issued to the small business and used exclusively for expenses of the small business, or, a business line of credit.

4. Loan to Value Limitations
– Loan to Value for Qualified Debt cannot exceed 90%
– If Eligible Business Expenses are included in the Refinance, the LTV is reduced to 85%, and, Eligible Business Expenses included in the Refinance may not exceed 20% of the value of the Eligible Fixed Assets securing the Qualified Debt.

5. Borrower Equity
– Will ordinarily be the existing equity in the Eligible Fixed Asset, requiring no further equity into the Refinance Project.

These are just some of the highlights/key provisions of the 504 Refinance without Expansion Program. This is an outstanding mechanism for helping your borrowers limit their exposure to interest rate increases and improve cash flow with longer-term amortizations at a fixed rate! Let your borrowers/customers know you’re looking out for them by making them aware of this tremendous refinance tool!

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  • About the Author


    Thomas M. Woebkenberg

    Tom Woebkenberg practices in the firm’s Real Estate Practice Area. His practice consists primarily of commercial real estate transactions. He represents lenders of all sizes throughout Ohio and Northern Kentucky.

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