You may or may not know that several changes were made to U.S. Small Business Administration (SBA) loan programs this past September with the passage of the Small Business Jobs and Credit Act. One of the most-significant changes is the two-year provision that allows small-business owners to use SBA 504 loans to refinance commercial real estate. I go into further detail about the groundbreaking opportunity SBA loans have presented and why they can help you own your own commercial real estate for your small business.

1. MARCH 2011 ● CENTRAL FLORIDA EDITION
SBA 504 Refinancing: A Groundbreaking
Opportunity
By Chris Hurn, CEO/Cofounder, Mercantile Capital Corporation
You may or may not know that several changes were made refinance and take advantage of low interest rates, your
to U.S. Small Business Administration (SBA) loan programs situation would become much more manageable. The
this past September with the passage of the Small Business only problem is that it’s tough to find a bank that will do
Jobs and Credit Act. One of the most-significant changes is a conventional refinance these days, even for physicians.
the two-year provision that allows small-business owners to Today’s tighter underwriting standards have made it
use SBA 504 loans to refinance commercial real estate and increasingly difficult for borrowers like you and other
other eligible fixed assets, and this has huge ramifications for doctors to qualify with most banks.
physicians who own their commercial property.
The scenario I’ve just laid out may not describe your
By refinancing your commercial mortgage with a 504 loan, situation exactly, but if you’ve purchased commercial
you can tap the embedded equity in your commercial property in the past 10 years, I’m probably not very far
property, as well as take advantage of historically low interest off. The good news is that the SBA is giving you a second
rates. The SBA 504 loan program may be the best-kept chance by allowing refinancing with 504 loans of up to 90
secret in commercial property financing because it offers percent loan-to-value and up to 125-percent with additional
the highest cash-on-cash return financing available, as collateral pledged. This is a major benefit for medical
well as below-market, long-term fixed interest rates and practices, whether you’re struggling with the tough economy
longer amortizations. The opportunity to use these loans or not.
for refinancing is a great one for doctors and other medical
professionals, and should be acted upon immediately. FIVE QUESTIONS FOR ELIGIBILITY
In January, the SBA announced specific guidelines to
A SECOND CHANCE determine who qualifies for 504 refinancing. To find out if
A large number of physicians bought the commercial you’re eligible, answer the following five questions:
property their practices occupy in recent years. If you
1) Does your note to be refinanced have a maturity date on
were one of them, then you made a great decision. Doing
or before 12/31/2012?
this allowed you to turn a monthly lease payment into
a mortgage payment which actually builds equity and 2) Has your debt been outstanding for at least two years?
ultimately creates wealth. The decision made great business
sense, and you probably got a conventional loan from your 3) Has your practice been in operation for at least two years?
commercial bank to finance your project. 4) Have you been current (no payment deferrals or past
Fast-forward to the present: just like so many other doctors, dues of more than 30 days) on your note for the past 12
you’re facing a ballooning note payment. If you could months?

2. 5) Was the debt to be refinanced substantially (85% or an indirect benefit to you. This refinance provision also
more) used for eligible 504 purposes originally (owner- helps banks. It’s no secret that banks are being forced by
occupied commercial real estate, heavy machinery, their regulators to increase their capital, lower their risks and
equipment, and closing costs related to the project)? generally strengthen their balance sheets. In many cases, that
means reducing their exposure to commercial real estate.
If you can answer “Yes” to all of the above questions, then
If you approach your bank to refinance your commercial
SBA 504 refinancing is a strong possibility for you and you
mortgage into a 504 loan, you might just be doing your
ought to contact a 504 specialist lender right away. Also,
banker a huge favor. And working with a lender who
the SBA is accepting applications as of 2/28/11 (the day I’m
specializes in 504 lending without requiring any change in
composing this article), so this program ought to be in full
your banking relationship will lessen any perceived threat in
swing by the time you read this.
this situation.
THE PERFECT TOOL If you’ve purchased commercial property for your practice
In addition to its beneficial terms for physicans, the SBA 504 at least two years ago, you ought to look into refinancing
program is a zero-subsidy program. In other words, it does now with an SBA 504 loan. Even if you haven’t purchased
not cost taxpayers anything. Program fees have carried it for property, you probably know someone who has. Pass this
years without any federal subsidy, and the program has run article along to them because this opportunity just might
such a surplus at times that the government redirected some make their year.
of these funds for entitlement spending a few years ago. In
addition, the loan-loss rate is historically about one-third
Chris Hurn is Chief Executive Officer/Cofounder of Mercantile
that of the 7(a) program —¬ the SBA’s other flagship loan
Capital Corporation, based in Altamonte Springs, Florida. His
program, which has allowed refinancing for some time. company focuses exclusively on providing SBA 504 loans (aka
From the taxpayer’s perspective, 504 refinancing is a better “SmartChoice” Commercial Loans) for small business owners who
deal, and you benefit as well. The 7(a) is mostly a floating- want to acquire and/or construct their own commercial facilities. He
was recently awarded the SBA’s “Financial Services Champion of the
rate loan program — which isn’t the best option for long-
Year Award” for the second time in just four years. You can contact
term, hard assets like commercial property — and often him at 407-786-5040 or email him at ChrisHurn@MercantileCC.
requires additional collateral. This additional collateral often com. For more information about Mercantile Capital Corporation,
takes the form of a second lien on your home or liens against be sure to visit www.504Experts.com, www.504blog.com and www.
inventory and receivables. This ties up those assets and can SBA504LoanRefi.com.
ultimately be problematic if you later need a line of credit
or other short-term financing. By making 504 refinancing
possible, the SBA is doing a world of good for many small
medical practices.
Some critics will argue that this provision will only cause
business-owners to use their commercial real estate like
an ATM, much like homeowners did in the recent credit
boom. But that analogy doesn’t apply here. Small businesses
historically create the lion’s share of jobs in the U.S. Many
small-business owners have cut expenses and have leveraged
up to stay in business during an economically difficult
period. In addition, entrepreneurial physicians like you
typically make decisions to maximize profits and grow your
business — not to spend recklessly.
LARGER IMPLICATIONS
There’s one other thing you should know, something that’s