A government program that lets small-business owners refinance commercial mortgages is set to expire next week, but supporters are hopeful that Congress will revisit it after the November elections.
The program, which expires Sept. 27, enables any eligible small business with a mortgage that is at least two years old to refinance its obligation via the Small Business Administration’s Section 504 loan program, regardless of the loan’s maturity date.
The assistance, part of a series steps the government took in 2010 law to aid small-business owners, enables borrowers to restructure real estate debt or tap equity in their property for business purposes.
Under SBA rules, borrowers can finance up to 90% of their property’s appraised value, with 50% of the loan coming from a financial institution and the remainder from an SBA-backed community development company.
Though the 504 refinance program began in the spring of 2011, it has picked up significantly since then. Nearly 2,300 small businesses have borrowed roughly $2.1 billion through the refinancing push. Most of the demand has occurred since last October, when the SBA eased restrictions on borrowing.
Backers cite the demand as a reason Congress should be looking to revive the program when legislators reconvene after the fall elections.
“We absolutely need to find a way to keep it going,” Chris Crawford, president of the National Association of Development Companies, a trade group that pushed for the law, told American Banker Wednesday. “The credit box continues to be kind of tight, and there continues to be a need to provide refinancing opportunities, especially at today’s rates.”
Some bankers who lend to small businesses say the program deserves to continue amid signs the economy is picking up and the Federal Reserve’s decision to keep interest rates low through mid-2015.
“I’m not sure we’ve given it enough time to take hold to help the businesses that need help,” says Mark Wills, a senior vice president at Georgia Bank Trust in Augusta. “We’re just now seeing these small business owners recovering a little bit. From a banker’s perspective, I’m starting to see some requests that I didn’t see before.”
Wills serves on both the NACD’s advisory council and the board of his local community development corporation. He says the refinancing program’s terms, which can include a fixed-rate, 20-year loan on the SBA-backed portion of the loan, are appealing to banks that typically would not make such loans on their own. “As a banker, I’m not going to give them a 20-year fixed rate” without the SBA guarantee, Wills says, adding that the program helps small-business borrowers improve their cash flow.
In April, Sens. Mary Landrieu, a Louisiana Democrat who chairs the Senate Small Business and Entrepreneurship Committee; Olympia Snowe, a Maine Republican and the committee’s ranking member; and Jeanne Shaheen, a New Hampshire Democrat, introduced a bill to extend the refinancing program past its sunset. The measure later stalled in the Senate despite several tries by the sponsors to attach it to other legislation. Just last week, Landrieu attempted to attach the measure to a bill establishing a jobs program for veterans.
“By allowing small businesses to refinance qualified commercial real estate debt, the 504 refi program lowers their monthly mortgage payments at no cost to taxpayers,” Sen. Landrieu said in a statement to American Banker. “At a time when we are still facing high unemployment, extending this program is a common-sense way to help small businesses and create jobs. It is one of many things that we should be doing to put more capital in the hands of America’s job creators.”
For his part, Crawford says an effort last week by the House of Representatives to increase funding for the SBA in a stopgap spending measure that would fund the government through March 2013 shows a commitment by legislators to doing what they can to aid small business.
“We need job creation, and job creation only happens when you have capital to throw at jobs,” Crawford said.