SBA Finalizes Rule to Lower Costs for Small Businesses

After Interest Rate Cuts Generate Automatic Savings for Hundreds of Thousands of SBA Borrowers, 504 Program Changes Will Lower Costs Further for More Small Businesses

Yesterday, Administrator Isabel Casillas Guzman, head of the?U.S. Small Business Administration (SBA)?and the voice in President Biden’s Cabinet for America’s more than 34 million small businesses, announced a new rule that will make it easier for small business owners to refinance debt using the?SBA 504 Loan Program, empowering them to reduce their debt payments and/or access more affordable capital for expansion or growth.?This will lower costs for many small businesses that are supported by the 504 Loan Program, which provides long-term, fixed rate financing for real estate and equipment with SBA-backed capital.

This action comes on the heels of the Federal Reserve’s September Rate Cut, which is already lowering borrowing costs for small businesses. In the?SBA’s 7(a) Loan Program, the agency’s other flagship capital access program, an estimated 200,000 borrowers will see their monthly payment on their variable-rate loan automatically drop by 0.5%, starting this month. Those reduced monthly payments will translate into approximately $360,000,000 in yearly savings for 7(a) borrowers. As?President Biden said earlier this month, “This is a moment […] for business to feel greater confidence to invest, hire, and to expand.? It’s a moment for individuals to feel greater confidence buying a home, a new car, starting a family, starting a new business.”

“The Biden-Harris Administration is laser-focused on lowering costs for the American people, including the incredible small business owners who make this country run,” said SBA Administrator Guzman. “Coupled with the recent Federal Reserve interest rate cut, which is already benefitting small businesses and SBA borrowers, SBA’s new rule will help business owners lower costs by streamlining access to debt refinancing so they can reduce payments and access more affordable capital. Small businesses are the engines of our economy, and the Biden-Harris Administration is delivering remarkable progress to improve their bottom lines and help them continue to fuel America’s historic economic recovery and Small Business Boom.”

The 504 debt refinance direct final rule is officially released today and becomes effective on Nov. 15.

504 Updates Resulting from the Direct Final Rule:

With this direct final rule, the SBA has amended regulations governing the 504 Loan Program for debt refinancing with expansion (for small business owners seeking to refinance their existing loans while also using loan proceeds to expand their business) and debt refinancing without expansion (for small business owners seeking to refinance their existing loans).? These changes will streamline the loan application process and expand eligibility criteria for small businesses borrowers.?With few exceptions, most types of small businesses are eligible to access SBA's 504 Loan Program and may benefit from these recent program changes.

The program changes include improvements that will:

• Streamline 504 Debt Refinancing for small business borrowers and lenders alike, to simplify program rules, provide greater flexibility, and expand access to more affordable capital.
• Make it easier for small businesses to refinance physical property,?including land, facilities, and machinery.

Example: Through this rule change, a small, rural call center would be able to better harness the value of their land, buildings, and equipment when refinancing debt. They will also be able to lower their monthly payments, including for debts incurred when originally financing these fixed assets.

• Broaden the ways small businesses may use debt refinance loan funds, especially for small businesses wanting to expand their operations.

Example: Through this rule change, a thriving small coffee cafe and roastery will have greater flexibility on how they can use their loan—making it easier for them to refinance their existing equipment, upgrade their roasting plant, and expand to a new location. By freeing up savings on their monthly payments, this business will be able to reinvest in growing their company.

• Remove the requirement that borrowers demonstrate a minimum reduction in their loan payment from refinancing.

Example:??By lifting this restriction, the owners of a small manufacturing company will have the freedom and flexibility to determine for themselves if it makes sense for them to refinance their production line—whether to unlock savings and lower their monthly installments, or to access more capital from their fixed assets without increasing their monthly payments.

Borrowers may also refinance business debt, either an existing SBA loan or other debt, using a 7(a) Loan. Small businesses that borrowed over the last year or two may wish to consider options to refinance into a lower rate. Individuals interested in using 7(a) or 504 to refinance debt may leverage SBA’s?Lender Match tool to reach lenders nationwide, or they may contact?their local SBA District office or?their local Certified Development Companies (CDC), which are authorized to make 504 loans statewide. For information on current and historical 504 interest rates, see those posted by SBA’s Fiscal Agent contractor,?Eagle Compliance, LLC. At a later date, SBA will conduct trainings and provide assistance through the agency’s Learning on Demand website.