Published on September 18, 2012 by Business Journals by Kent Hoover, Washington Bureau Chief
A government program that allowed small businesses to refinance their commercial real estate mortgages is coming to an end.
The two-year program allowed businesses that owned their own real estate to refinance their loans through the Small Business Administration’s 504 program, which pairs government-guaranteed loans made by nonprofit certified development companies with conventional loans for real estate projects and other fixed assets. This enabled businesses to get lower interest rates on their real estate loans, avoid balloon payments on their old mortgages and even turn equity in their real estate into working capital.
As of Sept. 14, nearly 2,300 small businesses had taken advantage of this refinancing opportunity, taking out $2.1 billion in 504 loans. Many more 504 refinancing applications are in the pipeline, and could be approved before the program ends Sept. 27.
Total refinancings through this program could end up totaling $2.5 billion, predicts Chris Crawford, president and CEO of the National Association of Development Companies, which represents 504 lenders.
“That’s a pretty good number considering we got sandbagged” initially on the program’s regulations, he said.
The SBA at first restricted the program to small businesses whose mortgages were maturing within two years. As a result of that and other restrictions, only 307 refinancings totaling $255 million were made during the first year of the program.
The SBA loosened those restrictions last October, which encouraged a lot more small businesses to take advantage of the low interest rates offered through the 504 program.
Given the continued tight market for conventional commercial real estate mortgages, Crawford and other advocates of the 504 program lobbied Congress to extend the refinancing program. Sen. Mary Landrieu, D-La., who chairs the Senate Small Business and Entrepreneurship Committee, sponsored legislation to extend the program, but the bill never reached the Senate floor for a vote.
“We have tried to push every button, pull every string” to get the program extended, Crawford said.
“The challenge is our political environment,” he said.
As the November election draws closer, fewer bills are making their way through Congress.
Crawford and other 504 advocates will try to get Congress to renew the refinancing program during the lame-duck session after the November election. That will be difficult, he said, but “the need is still there.”
Meanwhile, Crawford expects the market for new 504 loans (vs. refinancings) will be strong in the coming fiscal year. Refinancings helped 504 loan totals pass the $6 billion mark this year. Crawford expects about $5.5 billion in 504 loans will be made next year, even without the refinancing program.
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