On February 5, 2010 the White House proposed the expansion of two Small Business Administration (SBA) loan programs to help increase small business working capital and help small businesses refinance maturing debt.

According to SBA Administrator Karen Mills, the tight credit market of the last two years has cut lines of credit for small firms.  Raising the limit on SBA Express loans from $350,000 to $1,000,000 would give small business owners quicker access to a source of capital to restock inventories and create jobs. SBA “small business” size standards vary based on the business’ industry type, maximum annual receipts (ranging from .75 to 33 million) and/or maximum number of employees (ranging from 50 to 1,500), and are generally classified by the SBA using NAICS (North American Industry Classification System) codes.  Program specific size standards may also apply.

In addition, the White House proposed expanding the SBA’s 504 loan program to temporarily allow for the refinancing of owner-occupied commercial real estate.  According to Ms. Mills ”thousands of good, creditworthy businesses find themselves caught be declining real estate values…many of them facing mortgages coming due in the next few years.”  The SBA 504 loan program currently is limited to financing for new development or construction and for a limited amount of refinancing for use solely when businesses are expanding.

The qualifications and details for the proposed 504 loan program modifications, posted by the SBA, include:

Program Structure (follows existing 504 program):

  • 50% or more by commercial first mortgage (private lender, no government guarantee);
  • Up to 40% SBA backed guaranty;
  • At least 10% borrower equity

Eligibility (mirrors existing 504 program):

  • Small business qualification (that cannot obtain credit elsewhere);
  • Eligible collateral (owner-occupied real estate, fixed assets); and
  • Existing mortgage, currently performing (not in default), maturing in one year.

Debenture Size:  up to $5 million/$5.5 million for manufacturing

Refinancing Parameters:

  • 90% refinance of current appraised value or 100% of outstanding principal (whichever is lower) plus allowable closing costs;
  • 70% LTV required for same institution debt refinance, 50% for new institution (ie, a same institution refinance would only qualify for a 20% SBA backed debenture)
  • Either 10 or 20 year term
  • Lenders to write down or subordinate any debt in excess of the financing limits

New legislation is required to implement the above proposals.[1]

Contact the real estate team at Maiello Brungo & Maiello to discuss SBA loan programs and qualifications.


[1] In addition existing federal legislation is pending (H.R. 3854 – the Small Business Financing and Investment Act of 2009), which among other things increases SBA Loan limits, expands some SBA loan eligibility, and which extends some of the short-term relief provided by the American Recovery and Reinvestment Act of 2009.  This bill was approved by the US House of Representatives and referred to Senate Committee November 2, 2009.  This bill does not incorporate the proposals described above, or the loan limit increases proposed by the White House and SBA administration in October of 2009 which suggested increasing 7(a) program limits from $2 million to $5 million; increase 504 program loan limits from $2 million to $5 million for regular projects ($5.5 million for manufacturing); and increasing microloans from $35,000 to $50,000.

Alfred C. Maiello
Alfred Maiello

Alfred C. Maiello is the founding member of MBM and has represented area school districts as solicitor for 50 years. He counsels school districts and educational institutions on leading developments in school law and guiding them through their day-to-day and long-term challenges.