How do the revised rules in the Bipartisan Budget Act of 2015 affect you and your business?
Small businesses with higher interest rates or facing balloon payments on their loans now have the opportunity to refinance using an SBA 504 loan.
The program actually launched a year ago, according to Sean Avery of the Community Economic Development Co. of Colorado, but the guidelines for the program were too conservative and many businesses either didn’t want to use the program or were not eligible.
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The SBA then relaxed the guidelines and businesses have begun to take advantage of the program.
Avery’s company has refinanced seven loans through the program, with both the size of the loans and the types of companies running the gamut. The smallest loan Avery refinanced was for $300,000, but loans up to $5 million are eligible.
Companies from construction firms to music stores have benefitted from the program, according to Avery. The loans can be used to refinance up to 90 percent of the appraised value of existing commercial mortgages.
To qualify for refinancing under the program, businesses must meet many of the same requirements for a typical 504 loan. They must be an eligible “small business” as defined by the SBA, which means that their net worth must be less than $15 million, Avery said.
In addition, real estate financed by the loans must be used by the company, rather than as an investment property.
One big difference in the 504 refinancing program is that the money does not specifically have to be used for expansion, as it does with a typical 504 loan.
Like other 504 loans, 504 refinances must be processed through a certified development company. There are six in Colorado, the largest being Colorado Lending Source, headquartered in Denver.
Certified development companies are able to work with any bank on 504 loans and refinancings, but tend to develop relationships with specific banks, Avery said. The companies also have the ability to work anywhere in the state.
The interest rates are “awesome” according to Avery, who said that in March, he was able to offer loans at 4.79 percent, far below the typical 6.25 percent on SBA loans outside of the program.
A part of the Small Business Jobs Act, the program is only temporary, and is set to expire in September. That means that all approvals on loans through the program must be in place by September.
The program has worked well enough that some members of Congress, particularly in the Senate, want to extend it for another year, allowing more businesses to refinance and use excess equity in fixed assets to obtain working capital.
“The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years,” said Karen Mills, SBA administrator. “As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring debt.”
The refi program, in other words, could help.
Verus ranks in Top 100 community banks
Just after celebrating its one-year anniversary, Verus Bank of Commerce was named in the top 100 community banks by SNL Financial.
SNL Financial, a bank and thrift financial analysis firm, every year compiles financial information and ranks the top 100 banks in two categories: those above and below $500 million in assets. Rankings are based on an institution’s income, efficiency, growth and credit quality.
For 2011, Verus ranked 19th out of 4,316 banks with assets less than $500 million. Verus was formed in February 2011 by merging three existing community banks, Fort Collins Commerce Bank, Loveland Bank of Commerce and Larimer Bank of Commerce.
Bank founders Gerard Nalenzy and Mark Kross completed a buyout of Capitol Bancorp’s ownership of the banks at the end of 2010 in order to expand local ownership in the community.
As of Dec. 31, Verus held nearly $240 million in assets.
Molly Armbrister covers banking for the Northern Colorado Business Report. She can be reached at firstname.lastname@example.org or 970-232-3139.