Congress has passed a $900 billion COVID relief package combined with the $1.4 trillion governmentwide funding under the 2021 Consolidated Appropriations Act. The combined legislation now heads to the President who is expected to sign it into law. The COVID relief portion of the legislation includes many small business provisions important for the 504 industry as summarized below.
Change to 504 Debt Refinance Programs
On Thursday July 29th SBA published the new interim final rule for 504 debt refinance programs authorized under section 328 of the Economic Aid Act. The interim final rule takes effect immediately and SBA has begun accepting applications. The long-awaited regulations expand the usefulness of the 504 debt refinance programs to assist small business recovery and growth. Below is a summary of the most notable changes.
504 Debt Refinance WITHOUT expansion
- Existing debt was incurred not less than 6 months prior to application.
- Existing debt can have a federal guarantee. This includes existing 504 and 7a loans, however certain conditions apply.
- If a 504 is being used to refinance federally guaranteed debt the new debt service must result in a “substantial benefit” for the borrower. At a minimum the savings must be at least 10% on monthly/annual basis.
504 Debt Refinance WITH expansion
- Amount of existing indebtedness that may be refinanced as part of a 504 project increases from not more than 50% to not more than 100% of the project costs of the expansion.
If you are interested in learning more don’t hesitate to reach out to one of our experienced lending professionals.
Extension of CARES Act Section 1112 Payment Subsidies
NADCO led a coalition of small business trade associations in advocating for extended payment subsidies under Section 1112 of the CARES Act to assist small business with critical relief during the economic recovery from the coronavirus pandemic. The legislation continues this vital relief by resuming the payment of principal, interest, and fees on small business loans guaranteed by SBA under the 7(a) [including Community Advantage], 504, and Microloan programs as originally established in the CARES Act.
• All borrowers will receive an additional three months of payment assistance starting in February 2021, capped at $9,000 per borrower per month
• After the three-month period, borrowers considered underserved will receive an additional five months of payment subsidies capped at $9,000 per borrower per month, including –
1. Borrowers with SBA Microloans or Community Advantage loans, and
2. Borrowers with any 7(a) or 504 loan in hardest-hit industries, including food service and accommodation; arts, entertainment, and recreation; education; and laundry and personal care services
• Payment subsidies for six months will resume for new loans approved from February 1 to September 30, 2021, capped at $9,000 per borrower per month
504 Debt Refinancing Fixes
The legislation repeals limitations on 504 debt refinancing enacted in 2016 including the cap on a CDC’s refinance loan volume. There are also substantial improvements to 504 debt refinancing –
• Strengthening 504 debt refinance with expansion by increasing the debt refinance amount from 50% to 100% of expansion costs
• Strengthening 504 debt refinance without expansion by allowing the refinance of government guaranteed debt, allowing the refinance of a Qualified Debt that is 6 months old (down from 2 years), and dropping the requirement that the business must be current on all payments due for 12 months (converting this to a credit underwriting consideration rather than an eligibility barrier to the program)
• Allowing the refinance of Third Party Lender loans in an existing 504 project to include cash-out for business operating expenses to assist small businesses leverage existing equity capital to fund business operating and recovery expenses
504 Express Loan Program for Accredited Lenders
The legislation grants CDCs approved under SBA’s Accredited Lenders Program (ALP) with express loan authority to approve, authorize, close, and service 504 loans up to $500,000 to speed critical access to capital to small businesses.
Temporary Fee Elimination for the 504 Loan Program
The legislation eliminates the 0.5% SBA Participation Fee and the 1.5% CDC Processing Fee in debenture pricing for all loans approved from the date of enactment of the Act and ending on September 30, 2021. The CDC fee is offset with an appropriation to pay the CDC for the waived fee.