Understanding the Value of SBA 504 Refinancing
As a business owner with commercial real estate, timing your refinance can significantly impact your company's financial health. SBA 504 loans offer a powerful refinancing tool, providing below-market fixed rates and terms up to 25 years that can dramatically improve your cash flow position.
At BDC Capital, we've helped thousands of New England businesses secure over $2 billion in financing since 1953. As the oldest business development corporation in the United States, we understand when refinancing makes strategic sense for your business.
Key Signs It's Time to Refinance Your Commercial Property
1. Your Balloon Payment Is Approaching
Many conventional commercial mortgages include balloon payments after 5-10 years. If you're facing a balloon payment within the next 12-24 months, now is the ideal time to explore SBA 504 refinancing. Unlike conventional loans, SBA 504 loans are fully amortized over their entire term (up to 25 years), eliminating the stress of future balloon payments.
2. You're Paying High Interest Rates
If your current commercial loan carries rates significantly higher than today's SBA 504 rates, refinancing could yield substantial savings. Current SBA 504 refinance rates offer fixed rates that may be lower than variable-rate conventional loans, providing predictable payments for the life of your loan.
3. You Need Working Capital for Growth
The SBA 504 refinance program allows qualified borrowers to take cash out up to 20% of the appraised property value (within an 85% loan-to-value limit). This capital can fund business expansion, equipment purchases, or other operational needs without the high interest rates typically associated with working capital loans.
4. You Want to Consolidate Business Debt
If your business has multiple loans for real estate, equipment, or other business purposes, an SBA 504 refinance could consolidate these obligations into a single loan with one payment and potentially lower overall costs. At least 85% of the original debt must have been used for SBA-eligible purposes.
5. You're Planning Property Improvements
SBA 504 refinancing can include funds for renovations or expansions of your current facility. This option is particularly valuable if your business is growing and needs to modernize or expand its space without relocating.
SBA 504 Refinance Eligibility Requirements
To qualify for an SBA 504 refinance, your business must meet these key criteria:
- Be a for-profit company operating in the US
- Have a tangible net worth under $20 million
- Show average net income under $6.5 million for the past two years
- The property must be at least 51% owner-occupied (60% for new construction)
- The debt being refinanced must be at least 2 years old
- At least 85% of the original loan must have been used for SBA-eligible purposes
- Payments on the existing loan must be current for the past 12 months
Benefits of SBA 504 Refinancing
Long-Term Fixed Rates
SBA 504 loans offer fixed rates for the entire loan term (10, 20, or 25 years), providing payment stability that protects against future rate increases.
Lower Down Payments
With as little as 10% equity (often covered by existing equity in your property), SBA 504 refinancing preserves your working capital for other business needs.
Improved Cash Flow
Lower monthly payments through longer amortization and competitive fixed rates mean more capital available for business operations, growth initiatives, and unexpected expenses.
No Prepayment Penalties (After 10 Years)
While SBA 504 loans do have prepayment penalties in the first 10 years, these decrease over time and disappear entirely after year 10, offering flexibility for long-term planning.
Case Study: Manufacturing Company Refinance
A Massachusetts-based manufacturer was facing a balloon payment on their $1.2 million commercial mortgage. By refinancing with an SBA 504 loan, they:
- Eliminated the impending balloon payment
- Reduced their monthly payments by over $3,000
- Secured a fixed rate for 25 years
- Accessed $200,000 in cash-out funds to purchase new equipment
- Created 5 new jobs as a result of the expanded production capacity
Is Now the Right Time to Refinance?
Current economic conditions make this an opportune time to consider SBA 504 refinancing:
- Fixed rates provide stability in an uncertain economic environment
- Longer terms improve monthly cash flow
- Cash-out options provide affordable growth capital
- Refinancing can position your business for future expansion
How BDC Capital Can Help
As a Premier Certified SBA 504 lender serving New England, BDC Capital offers several advantages:
- Ability to approve SBA 504 loans unilaterally, streamlining the process
- Experience as the oldest business development corporation in the U.S.
- Capacity to provide down payment financing alongside your 504 loan
- Additional conventional financing options for working capital and other needs
Our team of seasoned professionals will guide you through the refinancing process, providing a clear assessment of your options and helping you secure the optimal financing solution for your business.
Next Steps
If you're considering refinancing your commercial property, contact BDC Capital today for a consultation. Our loan officers will evaluate your current financing, explain your options, and provide a tailored recommendation for your business.
Call us at 781-928-1100 or visit www.bdcnewengland.com to learn more about how SBA 504 refinancing can strengthen your business's financial position.
