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SBA 504 Program Expands to Help More Small Businesses Access Capital

Overview of SBA 504 Loan Program

Margaret Griffin, EVP, Chief Lending Officer at SomerCor, highlights the significance of the SBA 504 loan program for business owners. This program provides long-term, fixed-rate loans specifically designed for individuals looking to build, purchase, or refinance fixed assets such as commercial real estate and heavy machinery. Its structured approach helps facilitate substantial growth and stability within the small business community.

Enhancements to the SBA 504 Loan Program in 2024

In an effort to amplify the benefits of the U.S. Small Business Administration’s (SBA) leading economic development initiative, several notable enhancements to the SBA 504 loan program were enacted in 2024. These changes aim to broaden access to capital and provide greater financial flexibility for small and mid-size businesses facing economic challenges.

Key Changes Include:

• Removal of the $16.5 Million Cap on 504 Green Loans: This significant adjustment allows borrowers to secure unlimited financing for environmentally friendly projects, promoting sustainability in business practices.

• Update of the Alternative Size Standard for Inflation: This update effectively expands access to capital for more mid-size businesses by modernizing financial thresholds.

• Streamlining of the SBA 504 Refinance Program: These improvements simplify the loan application process, making it easier for borrowers to qualify for refinancing options.

Boosting Green Energy Initiatives

SBA Doubles Down on Green Energy Loans

With a commitment to supporting environmentally sustainable business practices, the SBA made a remarkable move in spring 2024 by removing the cap on Energy Public Policy projects financed through the 504 Loan Program. Commonly referred to as SBA 504 Green Loans, these projects can now be funded without limits on the number of loans or the total amount borrowed. This exciting change presents a perfect opportunity for small and mid-size businesses aiming to invest in energy-efficient improvements or renewable energy technologies within their commercial properties.

In order to qualify for the SBA 504 Green Loan program, businesses must either reduce energy consumption by a minimum of 10% through technological upgrades or generate at least 15% of their energy from renewable sources. This not only promotes sustainability but also positions businesses favorably in a market increasingly leaning towards green energy solutions.

Increased Access for Mid-Size Businesses

SBA Increases 504 Loan Program Access for Mid-Size Businesses

In a further effort to broaden access to the SBA 504 loan program, the SBA has updated its alternative size standards to accommodate inflation. The new regulations allow applicants to have a tangible net worth of up to $20 million, increased from the previous cap of $15 million. Additionally, the average net income after federal income taxes for the prior two fiscal years cannot exceed $6.5 million, adjusted from $5 million. For businesses that exceed these financial thresholds, an alternative calculation based on maximum employee counts per industry can still apply, ensuring that mid-size companies are not excluded from accessing vital capital.

Streamlining the SBA 504 Refinance Program

SBA Streamlines SBA 504 Refinance Program

The SBA 504 refinance program plays a crucial role in helping small and mid-size businesses leverage lower interest rates and access additional equity for working capital needs. In the fall of 2024, the SBA took significant steps to enhance this program, creating a more efficient loan process and expanding eligibility requirements for potential borrowers.

Businesses that secured loans during the rise of interest rates starting in spring 2022 can greatly benefit from the updated SBA 504 refinance options. Some of the key program changes include:

• Increased Loan-to-Value Ratio for Refinancing with Cash Out: The maximum loan-to-value ratio has increased to 90% (from 85%), allowing businesses to borrow more when refinancing their debts.

• Removal of the 20% Cap on Eligible Business Expenses: This change provides borrowers with increased access to essential working capital.

• Lowered Project Fund Requirements for Fixed Assets: The threshold for funds to be utilized on fixed assets has decreased to 75% from 85%, enhancing the qualification opportunities for various projects.

Eligible borrowers can refinance not only commercial loans but also other government debts, including SBA 7(a) and existing 504 loans. Qualification stipulates that the business must be operational for at least two years, and the property associated with the loan must be at least 51% owner-occupied.

Exploring Your Options with the SBA 504 Program

Given the growing popularity of the SBA 504 program and its increased reach in 2024, it is an opportune time for interested business owners to explore how this initiative can support their financial needs. For those looking for expert guidance, AI legalese decoder offers a valuable resource by simplifying the complexities of SBA regulations and lending requirements. This innovative AI tool translates legal jargon and makes it more accessible, allowing business owners to better understand their eligibility options and navigate the lending process confidently.

Connect with a member of the SomerCor team today at www.somercor.com to learn more about how the SBA 504 loan can positively impact your business or the businesses you serve.

— Margaret Griffin, EVP, Chief Lending Officer at SomerCor

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