Relief is now available for owners of small businesses feeling pressured by commercial mortgage debt and facing the specter of rising interest rates. The U.S. Small Business Administration and Indiana Statewide Certified Development Corporation have re-activated a refinancing program using SBA 504 small business loans.
“This is great news for small businesses that need financial breathing room to grow and create new jobs,” says Jean Wojtowicz, executive director of Indiana Statewide CDC.
Indiana Statewide CDC works with local lenders, usually banks, to provide SBA 504 loans to owners of small businesses. SBA 504 loans can give small business owners long-term, fixed rate financing similar to commercial loan terms available for large companies.
Between $100 billion and $200 billion in commercial real estate debt is projected to mature nationwide in 2016 and 2017. Much of this debt is owed by small businesses still struggling in a recovering economy.
The new SBA-504 Refinance program reprises a successful pilot initiative that in 2011-2012 helped more than 2,700 small businesses nationwide refinance nearly $7 billion in high-interest debt.
Jet Star of Zionsville and Prairie Mills of Rochester were two of more than a dozen Indiana small companies that used the SBA 504 refinance program in 2011-12. STAR Financial Bank and First Merchants Bank worked with Indiana Statewide CDC on those loans.
Prairie Mills, owner and president John Cory, says, “The 504 is a good product and it helped us consolidate our financing on favorable terms.” Prairie Mills produces E-Z Bake flour and corn meal and dozens of other cooking products, buying wheat, corn and other crops from Indiana farmers.
Jet Star distributes aviation and diesel fuel to airports and trucking companies. Jet Star CFO Greg Patchett says, “We were able to re-finance an original higher interest rate ballooning real estate debt facility to a lower fixed rate long-term loan improving cash flow and debt stability.”
Under the new refinance program, small businesses can take advantage of lower rates, fixed for 20 years, to lighten their monthly debt payments, improve cash flow and stabilize operations. The current SBA 504 loan rate is 4.32 percent.
If interest rates begin to rise, many small businesses will be challenged to qualify for a conventional refinance loan versus an SBA loan. With the new SBA 504 refinance loan, a bank and Indiana Statewide CDC can provide up to 90% financing on loans secured by fixed assets, leaving a 10% down-payment by the small business owner. The bank funds only 50 percent of the total debt, increasing the business owners’ ability to qualify for the loan. Approximately 40% is provided by Indiana Statewide CDC with backing from the the U.S. Small Business Administration.
Indiana Statewide CDC has provided more than $463 million to 1,145 Indiana companies since 1983, creating or saving 28,000 jobs, and is the most prolific CDC in Indiana.
Since Congress created the 504 program, SBA 504 loans have funded over $67 billion to more than 135,000 small businesses in the U.S. In turn, those small firms have created or retained over 2.1 million jobs.