The U.S. Small Business Administration is offering a lifeline to many commercial real estate owners with maturing mortgages.
Under a temporary refinancing program that will start on April 6, the SBA can refinance an eligible commercial real estate mortgage that is set to mature after Dec. 31, 2012, into an SBA-backed 504 loan. In February, the SBA initiated the program for mortgages maturing before that date.
Borrowers can refinance either 90 percent of the property’s appraised value or 100 percent of the outstanding mortgage, whichever is lower.
The lending limit on the program is $5 million. The borrower must qualify as a small business under SBA guidelines and the owner must occupy the property.
In February, the Business Journal reported that $979 million in commercial mortgage-backed securities loans in South Florida were set to mature this year, followed by $1.46 billion maturing in 2012. The amount of maturities coming in the following years is even greater.
“With the collapse of the real estate bubble, many small business owners have found themselves unable to refinance as a result of inflated real estate values at the time they took out their mortgage,” SBA Administrator Karen Mills said in a news release. “SBA’s temporary 504 refinancing program was first made available to those small businesses with the most immediate need. Today’s step opens this critical assistance to more small businesses, giving them the opportunity to restructure their debt and free up capital that will be essential to keeping their doors open and also their future ability to grow and create jobs.”
The SBA 504 loan has three components:
- A senior loan from a bank covering 50 percent of the property.
- A second mortgage with 100 percent backing from the SBA covering 40 percent of the property.
- Owner equity of 10 percent.