The federal government has announced that its two-year programme that allowed small businesses to refinance commercial real estate mortgages will be ending. Under the Small Business Administration’s (SBA) 504 programme, companies that own their own buildings were able to obtain government-guaranteed financing from non-profit certified development companies.
As a result, borrowers were able to obtain lower interest rates on real estate loans and avoid balloon payments on old mortgages. They were even able to use the equity in their real estate into working capital, which was a benefit for their business.
As of 14 September 2012, approximately 2,300 small businesses had used the SBA 504 programme to refinance $2.1 million in loans. More refinancing options are in progress and could be approved before the programme officially winds down 27 September. The total amount refinanced under the programme could reach $2.5 billion when all the figures are added up.
When the SBA was first launched, funding was restricted to small businesses only. Government regulations stated that the only mortgages which would be eligible were ones which would be maturing within two years. Only 307 mortgages worth $255 million were refinanced during the first 12 months the programme was in effect. The SBA did loosen these restrictions last October, which meant many more small business owners could take advantage of the low interest rates available through the 504 refinancing programme.
Despite the effort of advocates who lobbied Congress to extend the programme, legislation extending the refinancing programme never reached the Senate floor for a vote. With the November election getting closer, fewer pieces of legislation are getting through Congress. The market for new 504 loans is expected to be strong in the new fiscal year, even if the refinancing programme for commercial properties is not renewed.