SBA Throws a Lifeline to Small Business Owners Who Want to Refinance Underwater Mortgages

Your small business wants to refinance a mortgage that is about to mature, but can’t refinance in the private market because the economic meltdown has left your business with real estate worth near the amount of your existing loan, or less.  If this sounds like you, the SBA’s new program may help your business stay afloat.

Under the recent Small Business Jobs Act, the program requires the borrower to contribute 10% equity in the property.  The borrower will then work with private lenders to secure 50% of the remaining loan and with a nonprofit Certified Development Company that will provide the remaining 40% with an SBA guaranty.

This is an attractive option for some small business owners because the program allows them to refinance the lower of 90% of the appraised property value or 100% of the outstanding loan principal.  Typically, borrowers cannot get private loans unless the loans are equal to or less than 75% of the current appraised property value. The increased debt limit will make refinancing easier for small business owners who have current mortgages that approach or exceed the value of their property. Unlike the existing SBA 504 loan program, no business expansion is necessary to qualify for this expanded leverage. Existing SBA 504 loans or other government guaranteed loans are not eligible for refinancing.

If you would like to take advantage of SBA’s new program, you are encouraged to act quickly, especially if your mortgage matures or if you are facing balloon payments on or before December 31, 2012.  Business owners facing deadlines by that date will be given priority.  Even if your loan matures or you face balloon payments after December 31, 2012, you should still act quickly because the program anticipates accommodating only 20,000 business owners and you will want to be first in line when the program opens up to other small businesses. 

If you have any questions regarding this issue, please contact Alan Grochal via email.

This alert has been prepared by Tydings for informational purposes only and does not constitute legal advice.