If you’re a business owner with a variable interest rate right now, you’re a gambler.
“With interest rates on the rise nationwide, it’s time to refinance. Every time the Fed increases the prime rate, variable interest rate loans adjust – more recently landing some commercial loans at 8-10%. We haven’t seen that in a long time, and those rates could continue to rise,” says Seedcopa Managing Director Sherwood Robbins.
Case Study: The Couch Tomato
You may have heard of the local restaurant chain The Couch Tomato. Owners Craig Mosmen and Michael Cassano were college friends at the University of Delaware who worked in the restaurant industry, and then they decided to make it a career. They utilized a pair of SBA 7(a) loans for building acquisitions and improvements for their original 3,865 square-foot location in Manayunk in 2003 and a 4,920 square-foot facility in West Chester a decade later. The loans carried variable interest rates and in early 2022, those rates started to climb. Using the SBA 504 loan for debt refinance, they were able to move out of high-interest loans into long-term, fixed rate loans with a blended bank/SBA rate. The loan was facilitated by Seedcopa and bank partner S&T Bank. Savings on Couch Tomato’s existing loans paved the way for a third location in Conshohocken, which just opened in Fall of 2022 with capacity for 70 seats indoors and outdoors.
Long-awaited changes to the SBA 504 Debt Refinance Program went into effect just over a year ago. Here are the basics:
SBA 504 Debt Refinancing With Expansion
If you have a commercial real estate or heavy duty equipment expansion project and you’re also looking to refinance current fixed asset debt, the maximum amount of debt that may be refinanced within a 504 project is now 100% of expansion costs, increased from 50%.
Note: 85% of the debt to be refinanced must originally have been used for commercial real estate purchase, construction or improvements.
SBA 504 Refinancing Without Expansion
If you are looking for 100% debt refinance that does not include expansion, you may be eligible for SBA 504 debt refinance if your debt is at least 6 months old at the time of SBA application.
This is reduced from the previous requirement that the existing commercial debt be at least 2 years old. And you can refinance existing government guaranteed debt, including existing SBA 504 loans and 7(a) loans, that would not be able to be modified by the current lender.
Don’t forget: 85% of the debt to be refinanced must originally have been used for commercial real estate purchase, construction or improvements
Photo courtesy The Couch Tomato