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Debt Reset

Greg Strangman was in a bind when the loan he took out to open The Pearl Hotel on Point Loma came due in 2012.

“I didn’t have a lot of options as to where and how I could refinance this property,” Strangman said. “There wouldn’t have been a conventional program out there that would have worked for us, being a 23-room boutique hotel.”

Luckily, Strangman needed help just when the U.S. Small Business Administration was piloting a two-year initiative to help small businesses refinance mortgage debt, the SBA-504 Refinance program.

“It gave me a lifeline,” Strangman said.

Created as part of the Small Business Jobs Act of 2010, the pilot initiative ended in September 2012, but the SBA is resurrecting it as a permanent, ongoing program through the Consolidated Appropriations Act of 2016.

‘Great News for Small Businesses’

“This is great news for small businesses that need financial breathing room to grow and create new jobs,” said Kurt Chilcott, president of CDC Small Business Finance Corp. in San Diego, a not-for-profit SBA lender offering the new refinancing loans.

“It allows them to free up capital for growth by really lowering the payments on their debt,” Chilcott said. “We have a lot of small businesses with higher priced debt on their buildings. We’re trying to restructure that debt.”

Under the new SBA-504 Refinance program, a bank and an SBA-certified lending partner will provide 90 percent financing, leaving 10 percent to be put up by the business owner.

The bank funds 50 percent of the refinanced debt and a nonprofit development company like CDC Small Business Finance funds 40 percent backed by the SBA.

Other conditions apply, such as the business must have been in operation for at least two years without any ownerships change, and 75 percent of the original debt had to be used to finance real estate.

Catalina Offshore Products owner Dave Rudie said that the two-year pilot refinancing initiative helped him save enough money to expand his San Diego seafood business.

“It helped with the cash flow,” Rudie said. “We had a fairly high, 6 percent or 7 percent interest on the original financing.”

Working through CDC Small Business Finance, Rudie was able to refinance at an interest rate of 4 percent, said Kim Buttemer, chief operating officer of CDC Small Business Finance.

As the renewed SBA-504 Refinance program gets under way, rates are running in the mid to high 4 percent range, Buttemer said.

$7.5 Billion Available

In announcing the new SBA-504 program in May, SBA Administrator Maria Contreras-Sweet said that small businesses will have access to $7.5 billion.

“As both a former small business owner and a banker, I know firsthand that access to capital is the single, most important factor in the survival and growth of a small business,” Contreras-Sweet said. “The 504 loan program with its long-term, fixed rate can help refinance debt from adjustable rate loans with significant savings to borrowers. Paying off existing loans with a new loan at a lower cost can help increase cash flow, which can be especially helpful in a resurgent economy.”

Applying for an SBA-504 Refinance loan “is no more complicated than the average SBA loan,” said Mike Sarthou, a senior loan officer with CDC Small Business Finance.

“The whole process, from start to finish, would be anywhere between 30 and 60 days,” Sarthou said. “A lot depends on the client and how quick they are in returning the forms.”

Generally the loans range from $50,000 to $5 million, Sarthou said.

To qualify, a business has to occupy the property covered by the loan, has to have been in business for at least two years, must be current in making existing loan payments, and can’t already have a loan on the property that’s guaranteed by a federal agency.

“We can only refinance conventional loans,” Sarthou said.

Although the program is just getting underway, Sarthou said that many small businesses are already gearing up to apply.

“There’s definitely been a buzz and an interest,” Sarthou said.

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