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Yes, in many cases you can refinance a commercial mortgage on the building your business occupies with an SBA 504 loan. If you own your building and your current loan has a short term, a balloon payment, or a rate that resets, the SBA 504 refinance in Alabama is worth a close look. This guide walks through who generally qualifies, how the deal is structured, and what to gather before you call.
Alabama Small Business Capital (ASBC) is a private, non-profit Certified Development Company that has administered the SBA 504 Loan Program since 1989. Here is how we explain the refinance side of the program to business owners.
The SBA 504 Refinance Program is a version of the SBA 504 loan that pays off qualifying existing debt instead of financing a new purchase or expansion. It is available through a Certified Development Company (CDC), which is a non-profit lender authorized by the U.S. Small Business Administration to make 504 loans. You can read the basics of the standard loan on our SBA 504 Loan Program page, and the refinance details on our SBA 504 Refinance Program page.
The appeal is simple. Many commercial real estate loans from a bank or credit union are written with a 5 or 7 year term and a balloon payment, which means a large lump sum comes due at the end. A 504 refinance can replace that with a longer, fixed-rate structure.
Generally, your business must be a for-profit U.S. business that owns and occupies the property being refinanced. SBA.gov lists a tangible net worth of less than $20 million and average net income of less than $6.5 million after federal income taxes for the two years before you apply. Other requirements usually include:
Speculative real estate and working capital loans are not what this program is built for. Because SBA rules change, ASBC confirms the current requirements with you at the start of every conversation.
Most refinance deals involve a commercial mortgage on the building your business uses. Depending on the current SBA rules, the debt may also include certain equipment loans or other debt secured by the same fixed asset. In some cases, a limited amount of eligible business expenses can be included, such as certain operating costs.
Your CDC will review how the original loan was used and how long it has been in place. These details matter, and they are where deals most often get sorted out, so bring your original loan documents to the first conversation.
A standard 504 deal is split between three parties. The first-lien lender (your bank or credit union, which holds the first claim on the property) provides a portion. The CDC provides a second portion through an SBA-backed debenture, which is a long-term bond sold to fund the CDC's share. You provide the remaining equity, which for a refinance is usually the value you already have in the building.
Here is a hypothetical example only. Say a dental practice owns an office appraised at $1.5 million, with an existing loan balance of $900,000. The numbers below show one way a structure could look. Actual terms vary by deal.
PieceApproximate ShareHypothetical AmountFirst-lien lenderAbout 50%$450,000CDC (SBA debenture)About 40%$360,000Borrower equity in the propertyAbout 10%$90,000Total project100%$900,000
In this example the existing balance of $900,000 is split as $450,000 plus $360,000 plus $90,000, which adds up to $900,000. Notice that the practice's real equity is much larger than $90,000, since the building is worth $1.5 million. Lenders look closely at the loan-to-value ratio, meaning the loan amount compared with the appraised value, and the SBA sets a ceiling on it. Your CDC will tell you where the current limit sits.
Here are the steps most borrowers follow, in a typical order.
Our proven process page shows how we handle these steps. Timing depends on your file, the appraisal, and the lenders involved, so we never promise a closing date.
A refinance is not right for everyone. These are the trade-offs to weigh.
Before you decide, compare the total cost of both options over the time you plan to hold the building. You can run a rough estimate with our 504 loan calculator. Ask your CPA how the change could affect your tax situation, since that depends on your facts.
If you own your building, have been in business a couple of years, and your current loan is short-term or about to reset, the SBA 504 refinance may be a good way to lock in a longer, fixed-rate structure. It will not fit every property or every loan, and the rules can change.
The best next step is a simple conversation about your building and your current loan. If you are an Alabama business owner thinking about a refinance, call ASBC at (334) 209-2600 or reach out through our contact page.
Often yes, if your business owns and occupies the property, has been operating for about two years or more, and the debt was used for qualifying real estate or equipment. ASBC reviews each situation individually.
It varies. Appraisals, environmental reviews, and lender timing all play a part, and the process generally takes longer than a simple bank refinance. Your CDC can give you a realistic estimate once your file is reviewed.
The SBA sets a maximum loan-to-value ratio for refinance projects, and it has changed over the years. Ask your CDC for the limit that applies today.
In some cases, a limited amount of eligible business expenses can be included, subject to current SBA rules. Pure working capital loans are generally not eligible.
The CDC portion of a 504 loan typically carries a prepayment fee that declines over time. Check the specifics for your term, and also ask your current lender about any penalty for paying off your existing loan early.
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