Loan Modifications/Options

Assumption of the 504 Loan

In some cases a loan assumption may be more advantageous than prepaying a 504 loan. Assumption of a loan may be a way of transferring a better interest rate than current market rates and there are no prepayment premiums. SBA 504 may be assumed by a new borrower provided:

• The value of the collateral is maintained at the same level as available to the SBA prior to the assumption;
• The third party lender must concur with the assumption;
• In most cases the existing guarantors may be required to remain on the loan up to 12 months after assumption;
• A 1% assumption fee plus normal closing costs will be charged.

Subordination to a New Lender

SBA may subordinate the SBA 504 loan to a new third party lender if the refinancing is on more favorable terms for the borrower and the borrower does not receive any funds from the refinancing (no cash out), except for reasonable closing costs of refinancing. The term of the new third party loan must equal or exceed the term of the original third party loan. The SBA may also subordinate to a larger new third party loan if the loan proceeds will be used to improve the project collateral and the SBA’s collateral position remains the same or is improved by the transaction.

Deferments of Loan Payments

A deferment is a postponement of a payment to a later date without causing the loan to be considered late or in default. Deferments are used where it appears that it will assist the borrower in solving a temporary cash flow problem. The SBA may approve up to a six-month (cumulative) of payment deferment or 20% of the original amount of the loan whichever is less. The borrower must reasonably project that it will bring current the deferred amount within five years after the deferment period.

Release of Additional Collateral

On occasion SBA will take additional collateral to support the 504 loan. The SBA will make a credit decision regarding the impact of the release prior to any action. There must be indication that the remaining collateral is reasonable in relation to the outstanding loan balance and the release will not interfere with the operations of the business. The borrower should use proceeds of the release for business purposes. The SBA rarely gives consideration to release business assets in order to provide funds for personal reasons.