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Making refinancing into a reality

Congress considers broader use for borrowing under SBA’s 504 program

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Allowing refinancings under the 504 program can help solid businesses in industries that have fallen out of favor with bankers, says Ira Lutsky, right, of New Jersey Business Finance Corp. He’s pictured with Hector DaCosta, senior vice president.
Allowing refinancings under the 504 program can help solid businesses in industries that have fallen out of favor with bankers, says Ira Lutsky, right, of New Jersey Business Finance Corp. He’s pictured with Hector DaCosta, senior vice president. - (AARON HOUSTON)

The SBA's 504 loan program provides long-term financing for offices, factories and equipment, but right now, businesses can't use it to refinance their existing loans. Refinancing was allowed under a temporary rule that expired last September, and now Congress is considering legislation to bring the practice back for another five years.

The bill, the Commercial Real Estate and Economic Development Act, is sponsored by U.S. Sen. Mary Landrieu (D-La.) and U.S. Rep. Judy Chu (D-Calif.). It has the support of the Small Business Administration and has picked bipartisan co-sponsors in Congress, experts said. According to the SBA, President Barack Obama's budget authorized a temporary 504 refinancing program, which “helps small businesses lock in lower interest rates for their mortgage debts and take equity out to invest in their businesses — a measure which could help up to 10,000 small businesses.”

According to the SBA, the original 504 refinancing program that expired last September helped 2,700 business owners refinance a total of $2.5 billion in loans.

Ira Lutsky, president of the New Jersey Business Finance Corp., in Fort Lee, a certified development company that assembles 504 loan packages, said permitting refinances via the 504 program would help businesses. “It is very important for borrowers, because some industries lose favor with banks,” and even though the business is making loan payments on time, some banks may be reluctant to continue financing that sector.

For example, a retailer serving the home improvement industry may have a good track record, “but some banks may feel less comfortable” about this sector, Lutsky said. “I have gotten calls from banks that have said, 'We can't do this, but maybe you can help them.' ” He said New Jersey Business Finance Corp. did eight refinances out of 75 total 504 loans in the fiscal year that ended Sept. 30, some of which included hotels and small manufacturers.

Bruce Rossi, first vice president of Provident Bank and head of its SBA lending division, said he didn't do any 504 refinances during the time this option was available, but “I know others have, and were very pleased with it. I think it's probably useful — it gives the borrower another option.”

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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