The something new is a worthwhile enhancement to U.S. Small Business Administration’s 504 loan lending. The 28-year-old program can now be used to refinance your existing commercial real estate while it also funds your expansion.

But to understand the enhancement, we need to briefly review the something old.

It allows you to borrow up to 90 percent of your cost to build, buy or expand a commercial real estate building. The funds can also be used for capital equipment, furnishings, fixtures and fees incidental to the transaction. Examples of suitable real estate include owner-occupied, commercial condominiums, offices, warehouses, franchises, restaurants, car washes, bowling alleys and skating rinks. Investor-owned properties do not qualify.

Job creation is 504’s raison d’etre.

“For every $50,000 guaranteed by the SBA, (the borrowers) must be able to demonstrate that they are creating or retaining at least one job,” says Karen Mills, SBA’s administrator. As part of the federal stimulus initiative, job creation has temporarily been relaxed to one job per $65,000.

The program “is administered by about 270 certified development companies in a partnership with the commercial lenders and the SBA,” Mills says.

Christopher Crawford is president and chief executive of the National Association of Development Organizations. It is the trade association for the nation’s CDCs.

He says, “Since this program has been created in 1986, more than 3 million jobs have been created or retained by 504 loans, and that is by far the largest economic development program within the federal, state or local governments”

SBA typically guarantees 40 percent of the project cost in the form of a subordinated debenture. Simultaneously, a conventional lender makes a 50 percent first mortgage. The remaining 10 percent equity is injected by the borrower.

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The refinancing enhancement allows you to borrow money to pay off an existing commercial real estate mortgage that is not involved with your expansion. It cannot exceed 50 percent of the expansion cost for your new project.

Thus if your cost is $6 million to build your new manufacturing plant, you can also borrow $3 million to pay off the loan on your existing plant. Your total funding would be $9 million.

The 504’s loan-size constants are up to the lenders and CDCs. Most feel comfortable in the $200,000 to $10 million range.

As with most new programs, the dibbuk is in the details. Accordingly, lenders and CDCs will be poring over SBA’s procedural notice to understand the critical essentials.

Meanwhile, stay in touch with your banker, NADCO and its members for up-to-date information as the refinancing enhancement unfolds. See nadco.org for NADCO members and more about 504.