SBA Procedural Notice 5000-857295: 504 Refinancing Revisions to SOP 50 10 7.1 that Incorporate Changes made by 504 Debt Refinancing Direct Final Rule
Summary
SBA Procedural Notice, Control No. 5000-857295, effective October 1, 2024, to SBA employees and certified development companies, on 504 refinancing revisions to SOP 50 10 7.1. It revises the SOP provisions on the debt refinancing options in the 504 Loan Program to incorporate the changes made by the 504 Debt Refinancing Direct Final Rule (89 FR 79734), published October 1, 2024. The notice sets out the revised provisions.
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SBA Procedural Notice
TO: All SBA Employees and Certified CONTROL NO.: 5000-857295
Development Companies
EFFECTIVE: October 1, 2024
SUBJECT: 504 Refinancing Revisions to SOP 50
10 7.1 that Incorporate Changes made by 504 Debt
Refinancing Direct Final Rule
The purpose of this Notice is to revise the provisions of the SOP 50 10 7.1 relating to the debt
refinancing options available in the 504 Loan Program to incorporate the changes made by the
504 Debt Refinancing Direct Final Rule (89 FR 79734) published October 1, 2024. The
effective date of the rule will be November 15, 2024. The changes made by the Direct Final
Rule include: (1) removing the 50% cap on debt refinance without expansion to conform with
current legislation; (2) raising the loan to value requirement on debt refinancing without
expansion projects that include other business expenses to 90% and eliminating the cap on
Eligible Business Expenses; (3) aligning the “substantially all” standard for 504 debt
refinancing with expansion so it is consistent with the debt refinancing without expansion
standard of 75%; (4) revising the 10% substantial benefit test on 504 debt refinancing with
expansion and 504 debt refinancing without expansion on refinancing other government debt;
and (5) allowing certain “other secured debt” to be included as an Eligible Business Expense.
The revisions to SOP 50 10 7.1 are described below. Where revisions are not included, the
guidance remains as previously published in SOP 50 10 7.1.
A. SOP 50 10 7.1, Section C, Chapter 1, paragraph C.10 is revised to read as follows:
a. Subparagraph C(10)(a)(i)(e)(iii) is deleted in its entirety and replaced with the
following:
“iii) The refinancing of a Federally-guaranteed loan provided a substantial benefit to the
borrower after Eligible Business Expenses, prepayment penalties, financing fees, and other
financing costs are accounted for. “Substantial benefit” will mean that the portion of the new
installment amount attributable to the debt being refinanced must be less than the existing
installment amount(s). In calculating the percentage reduction in the new installment payment,
prepayment penalties, financing fees, and other financing costs, must be added to the amount
being refinanced, but not Eligible Business Expenses. The CDC may request the D/FA or
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Must be accompanied by SBA Form 58
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designee to approve an exception to the reduction requirement for good cause. PCLP CDCs may
not use their delegated authority to approve a loan requiring this exception.”
b. Subparagraph C(10)(iii) is deleted in its entirety and replaced with the following:
“iii. “Refinancing Project” means the fair market value of the Eligible Fixed Asset(s) securing
the Qualified Debt and any other fixed assets acceptable to SBA (Additional fixed assets may
be added only when needed to comply with the 90% Loan-to-Value Limitation described in
C.10.i below). A refinancing project may include funds for Eligible Business Expenses.”
c. Subparagraph C(10)(a)(iv) is deleted in its entirety and replaced with the following:
“iv. “Eligible Business Expenses (EBE)” are payments of the business for either Operating
Expenses or Other Secured Debt that:
a) Are limited to the “Operating Expenses” which are expenses of the business that
were incurred but not paid prior to the date of the 504 application or that will become
due for payment within 18 months after the date of application. Examples include
salaries, rent, utilities, inventory, and other expenses of the business that are not
capital expenditures.
b) Business Lines of credit and business credit cards may be included, if:
Loan proceeds are not used to cover any personal expenses;
If the line of credit and/or credit card was used for personal expenses, the
Applicant must identify which purchases were for personal expenses and deduct
that amount from the amount to be refinanced as an EBE;
The line of credit and/or credit card are in the name of the small business; and
The Applicant and the CDC certify in the loan application that the debt being
refinanced was incurred exclusively for EBE.”
c) “Other Secured Debt” is debt incurred prior to the 504 loan application that has been
secured by the same Eligible Fixed Assets securing the Qualified Debt and incurred
for the benefit of the Borrower and/or Operating Company. Other Secured Debt does
not include debt incurred for the purposes of capital expenditures, and any existing
liens must be released or subordinated to the amount of the debt being refinanced by
the 504 loan.
This is debt must be secured for at least 6 months prior to the date of application by
the same Eligible Fixed Asset(s) securing the Qualified Debt; and
The Borrower has been current on all payments due for not less than 6 months
preceding the date of application. “Current on all payments due” means that no
payment was more than 30 days past due from either the original payment terms or
modified payment terms (including deferments) if such modification was agreed to in
writing by the Borrower and the lender of the existing debt note less than one year
prior to the date of application.
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Must be accompanied by SBA Form 58
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d) If the Borrower is requesting that the refinancing include EBE, the application must
include a specific description and an itemization of the amount of each expense.
e) The CDC must retain in its file the following EBE documentation:
EBE must be itemized (a gross figure is not acceptable).
The CDC’s credit memorandum must:
Document the nature of the EBE;
Provide the itemization of EBE; and
Include the CDC’s certification that the EBE are eligible as defined in this
paragraph.”
B. SOP 50 10 7.1, Section C, Chapter 1, paragraph C.11 is revised to read as follows:
a. Subparagraph C(11)(b)(i) is deleted in its entirety and replaced with the following:
“i. Either:
a) Substantially all (75% or more) of the proceeds of the existing debt was used to
acquire a fixed asset(s) that was eligible for financing under the 504 loan program and
the remaining amount (25% or less) was incurred for the benefit of the small business
seeking refinancing; or
If the fixed asset(s) was originally financed through a commercial loan (hereafter the
“original loan”) that was subsequently refinanced one or more times:
Substantially all (75% or more) of the proceeds of the original loan was used to
acquire the fixed asset(s) and the remaining amount (25% or less) was incurred
for the benefit of the small business seeking the refinancing; and
The existing debt is the most recent refinancing of the original loan.”
b. Subparagraph C(11)(b)(vi) is deleted in its entirety and replaced with the following:
“vi. The financing will provide a substantial benefit to the Borrower when prepayment penalties,
financing fees, and other financing costs are accounted for.
“Substantial Benefit” means that the portion of the new installment amounts attributable to the debt
being refinanced must be less than the existing installment amount(s). The total installment amount is
determined by adding the two installment amounts attributable to the refinancing using the interest
rate of the most recent debenture funding on the 504 loan and the committed interest rate of the Third
Party Lender loan. The total amount must be less than the existing installment amount(s).
a) Prepayment penalties, financing fees, and other financing costs must also be added to the
amount being refinanced in calculating the reduction in the new installment payment.
b) Loans with seasonal payments would meet the Substantial Benefit test if there was an
improvement in the installment when calculated by averaging all payments over the most
recent twelve month period from date of application and comparing that to the new
installment amount attributable to the debt being refinanced.
c) Loans with balloon payments meet the Substantial Benefit test independent of the
reduction requirement.”
PAGE 3 of 4 EXPIRES: 10/1/25
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Must be accompanied by SBA Form 58
Federal Recycling Program Printed on Recycled Paper
c. Subparagraph C(11)(i) is deleted in its entirety and replaced with the following:
“i. In its commitment letter (Exhibit 15 of SBA Form 1244), the Third Party Lender must certify
that it has no reason to believe that the following statements in paragraphs i. and ii. below are not
true:
i. Either:
a) Substantially all (75% or more) of the proceeds of the indebtedness being
refinanced were used to acquire an Eligible Fixed Asset (e.g., land, including
a building situated thereon, to construct a building thereon, or to purchase
equipment) and the remaining amount (25% or less) was incurred for the
benefit of the small business seeking the refinancing; or
b) If the Eligible Fixed Asset(s) was originally financed through a
commercial loan (the “original loan”) that was subsequently refinanced one
or more times:
i) Substantially all (75% or more) of the proceeds of the original loan
was used to acquire an Eligible Fixed Asset (e.g., land, including a
building situated thereon, to construct a building thereon, or to
purchase equipment) and the remaining (25% or less) was incurred
for benefit of the small business seeking the refinancing; and
ii) The existing debt is the most recent refinancing of the original loan.
ii. All of the proceeds of the indebtedness being refinanced were used for the
benefit of the small business.
iii. In addition, if the indebtedness being refinanced is debt of the Third Party
Lender, or any of its affiliates (Same Institution Debt), the Third Party Lender
must certify in its commitment letter that it is not in a position to sustain a loss
causing a shift to SBA of all or part of a potential loss from the existing debt.”
Questions
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.
Kathryn Frost
Associate Administrator
Office of Capital Access
PAGE 4 of 4 EXPIRES: 10/1/25
SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
Federal Recycling Program Printed on Recycled Paper
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