March 3, 2021
C-Suite Wednesday — SBA Announces 504 Refinancing Rules for 2021
Yesterday, the SBA issued a Procedural Notice which implements a provision in the Economic Aid Act allowing Certified Development Companies (CDCs) to refinance certain Third Party 504 Loans. According to the notice, from December 27, 2020 to December 26, 2021, CDCs may refinance existing 504 loan projects in an amount that, when combined with the outstanding balance on the subordinate 504 loan, is not more than 90% of the total loan value.
However, the authority of a CDC to unilaterally allow the refinancing of a Third Party Loan may only be exercised under the following conditions:
- The CDC must retain in its loan file the Third Party Lender’s Appraisal which evidences that the loan has not been refinanced for more than 90% of the total loan to value.
- The CDC must set out the terms of the transaction in a properly executed Subordination Agreement.
- The CDC must properly record a Third Party Lender Agreement between the CDC and the Third Party Lender.
- The CDC must use appropriate counsel when drafting, reviewing, and recording the Subordination Agreement, Third Party Lender Agreement, Power of Attorney, and any other necessary documents related to the refinancing of the Third Party Loan.
- The following conditions set forth in SOP 50 55 related to the subordination of the 504 Loan to the new Third Party Loan continue to apply:
a)The Third Party Loan should be Seasoned;
b)The Borrower should have a satisfactory credit history;
c) An analysis of the Borrower servicing request must include the reason for the subordination and a description of how the new money will be used;
d) The Borrower must demonstrate the ability to repay all of the obligations on the full amount of the outstanding loan after the proposed subordination;
e)The subordination must be limited to a specific amount and not extend to future advances; and
f) The subordination may not otherwise adversely affect the priority of the lien securing the 504 Loan.
- Any refinancing of a Third Party Loan is subject to review by SBA’s Office of Credit Risk Management
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local SBA Field Office.