SBA has published SBA Procedural Notice 5000-857295 effective October 1, 2024, revising SOP 50-10-7.1 to incorporate changes made by the 504 Debt Refinancing Direct Final Rule published October 1, 2024. The changes from the Direct Final Rule and Procedural Notice are effective on November 15, 2024. Changes from the Direct Final Rule are detailed in NADCO Technical Issues Memo 28-24.
The notice makes requisite changes to SOP 50-10-7.1 –
- Removing the 50% cap on debt refinance without expansion to conform with current law. The cap had previously limited a CDC’s volume of new 504 debt refinance without expansion loans to no more than 50% of its prior year loan approval dollars. The Economic Aid Act of December 2020 eliminated this cap.
- SBA previously removed from SOP, so no changes to SOP 50-10-7.1 required.
- Raising the loan to value requirement to 90% on debt refinancing without expansion that includes other business expenses (EBE) and eliminating the cap on Eligible Business Expenses (EBE).
- The new procedural notice effectively rescinds prior corrections to SOP 50-10-7.1 issued in SBA Procedural Notice 5000-851789
- Aligning the “substantially all” standard for 504 debt refinancing with expansion to be consistent with 504 debt refinancing without expansion standard of 75%.
- The new procedural notice updates paragraph C.11. beginning on page 299, changing the prior 85%/15% guidance to 75%/25%.
- Allowing certain “other secured debt” to qualify as an Eligible Business Expense in 504 debt refinancing without expansion.
- The new procedural notice effectively rescinds prior corrections to SOP 50-10-7.1 issued in SBA Procedural Notice 5000-851789
- “Other Secured Debt” is debt incurred prior to the 504 loan application that has been secured by the same Eligible Fixed Assets securing the Qualified Debt and incurred for the benefit of the Borrower and/or Operating Company. Other Secured Debt does not include debt incurred for the purposes of capital expenditures – although such debt could meet the requirements for Qualified Debt.
- Other Secured Debt must be secured for at least 6 months prior to the SBA application date by the same Eligible Fixed Assets securing the Qualified Debt.
- The borrower must be current on all payments due for not less than 6 months preceding the SBA application date.
- Revising the 10% substantial benefit test for 504 debt refinancing with and without expansion when refinancing other government debt.
- The new procedural notice clarifies that substantial benefit means that the new install amount attributable to the debt being refinanced must be less than the existing installment amount(s).
To access this TI Memo or the notice via the NADCO website, please click below.