Refinance Commercial Real Estate with 504
The U.S. Small Business Administration’s (SBA) 504 Certified Development Company lending program can now be used to refinance commercial real estate (CRE) investments as well. The news is a welcome development in a real estate sector that's in dire need of financing. The 28-year old program’s new features can be found in the American Recovery and Reinvestment Act of 2009. It allows small businesses to borrow up to 90% for purchases of commercial real estate and even heavy equipment or machinery, according to an SBA statement. A small business qualifies if its net worth does not exceed $8.5m and its average net income is less than $3m after taxes for the two years before refinancing through 504, according to the SBA. The legislation provides an avenue for refinancing of commercial real estate property – perhaps a ladder out of the hole dug by CRE investors. If the debt refinanced does not exceed 50% of the business’ expansion, small businesses could receive funds for their growth. "All of these steps, along with other Recovery Act provisions, are aimed at increasing access to capital and giving small businesses just what they need to help lead our nation's economic recovery," SBA Administrator Karen G. Mills said in an SBA statement. To be eligible for the 504 refinancing, borrowers must be current on all payments of existing debt for the year leading up to refinancing, cutting back on struggling, high-risk businesses. Some CRE businesses are already taking their first steps towards revamping financing through other means. At the end of June, Encore Enterprises, a Dallas-based developer of retail properties launched Encore Opportunity Fund II, to acquire and develop real estate investor interests. Coupled with its first fund operation, which generated $150m, Encore can now purchase retail assets from distressed sellers, a potential cure the troubled CRE market has been searching for. Write to Jon Prior. For a detailed look into the current commercial property crisis, please see our feature in the July issue of HousingWire magazine for the details, available from today.