504 Refinance Returns

It’s official! Before we could bleak out another plea for Congress to pass the CREED Act or include SBA 504 refinance as another aspiration for 2016, language to grant refinancing using the 504/CDC program was inserted in the hulking 2,009 page omnibus budget bill that passed Congress and was signed by the president in two days.

How did they do it? As usual, with enough indirect, citation, and superfluous language to make your head--and your attorney’s bank balance--spin. Contained on pages 545-546 of the bill, you can read it here and I'll explain:

SEC. 521. (a) Subparagraph (C) of section 502(7) of the Small Business Investment Act of 1958 (15 U.S.C. 696(7)), as in effect on September 25, 2012, shall be in effect in any fiscal year during which the cost to the Federal Government of making guarantees under such sub-paragraph (C) and section 503 of the Small Business Investment Act of 1958 (15 U.S.C. 697) is zero, except that--(1) subclause (I)(bb) and subclause (II) of clause (iv) of such subparagraph (C) shall not be in effect; (2) unless, upon application by a development company and after determining that the refinance loan is needed for good cause, the Administrator of the Small Business Administration waives this para- graph, a development company shall limit its financings under section 502 of the Small Business Investment Act of 1958 (15 U.S.C. 696) so that, during any fiscal year, new financings under such subparagraph (C) shall not exceed 50 percent of the dollars loaned under title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 et seq.) during the previous fiscal year; and (3) clause (iv)(I)(aa) of such subparagraph (C)  shall be applied by substituting ‘‘job creation and retention’’ for ‘‘job creation’’.

Say what?

What does all that mean? Basically that the finance provisions of the original 504 loan program as they were in effect on September 25, 2012 (just ahead of the refinance expiration) will be restored so long as the program has a zero ($0) subsidy. Further, Congress requirement that the financing meets the jobs goal of the original act, namely that one job be created or retained (as references in last sentence) for every $65,000 of  financing ($100,000 for manufacturers). 

Finally, Congress limited the amount of 504 refinance to no more than 50% of the previous year’s funding level, and the bill raises the leverage that can be obtained by an CDC’s operating through multiple companies under common control to $350 million.

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To be clear, despite the tireless efforts of NADCO--which deserves plenty of credit--and their scattering of supporters on the Hill, the whole budget sailed through relatively unscathed due to the perfect storm of:

1. An omnibus 2016 budget bill that rolled in more than 2,000 pages of policy, negotiated furiously over the past 90 days since former speaker Boehner’s retirement notice;
2. Congressional leadership that seems to finally be fed up with entertaining the recalcitrant GOP fringe, and decided to return to governing; and
3. A looming 2016 presidential race that has enough controversy going for it without the dramatic sideshow of the feckless, self-inflicted wound of another government shutdown.

NADCO reminded their celebratory membership of the SBA’s own estimate that any restoration of refinance would take a minimum of 4-6 months to organize and publish regulations for, and develop the forms needed to startup the debt refinance program again. SBA must dissect the new restrictions added by Congress as well as to analyze  the results of the previous brief refi pilot.

Where to go from here? I’m thinking about that very question and plan to write more in early January, so stay tuned. While I don’t think 504 BDOs need to stop doing what they’re doing today, which they seem to be doing better over the last 14 months, I also don’t think that an industry-wide homerun is in store for the fourth quarter of FY 2016. The industry still faces some other challenges, as I discussed last month.

For the moment, celebrate a great and deserved win for the 504/CDC business, send a note to Barbara Vohryzek in appreciation for her steady hand on the helm of NADCO, and reach out to thank your Congress-person & Senator for moving on.

Then spend a few minutes over the holidays pondering these proverbial question “what’s next,’ and we’ll come back to it early next year.

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What do you think? Your comments are welcome or write me @ [email protected].