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Indiana business owners and lenders gain new refinancing options from SBA
Owners of Indiana small businesses have new ways to finance expansion projects through one of the nation's most popular business financing programs.
The U.S. Small Business Administration 504 loan program is allowing small businesses that are expanding to refinance existing loans into a 504 project.
"The effect is to improve cash flows for small companies while they expand," says Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corporation, Indiana's largest lender of SBA 504 funds.
Wojtowicz is also board chair of the National Association of Development Companies (NADCO), the trade association for the nation's 270 development companies certified by the SBA to issue 504 loans.
Small business owners can get information about the new 504 provisions through CDCs or their local commercial lenders. Development corporations such as Indiana Statewide CDC partner with local banks to loan money from the 504 program to small expanding businesses.
The new reinvestment allowance is one way the SBA is using $255 million it received through the American Recovery and Reinvestment Act (ARC), part of the federal stimulus package.
Wojtowicz explains some of the details:
- The expansion includes any project that involves buying commercial or industrial land, improving a building, new construction or buying equipment.
- Any small business planning an expansion may refinance existing, eligible debt as long as the amount being refinanced is 50 percent or less of the total cost of the expansion. "Projects are able to be up-sized by 50 percent," Wojtowicz says.
- The refinanced debt must be related to the expansion, but may be at a different location as long as the operations at both locations carry the same North American Industry Classification System (NAICS) code.
Background
The Small Business Administration's (SBA) 504 loan program provides long-term, fixed rate financing for commercial real estate. Since its inception 504 has funded nearly $40 billion in loans to growing small businesses. Indiana Statewide CDC is one of approximately 270 certified development companies that work with the SBA and local banks to provide loans from the 504 program.
Wojtowicz says, "SBA 504 loans work for borrowers because the SBA guarantees a portion of the loan, reducing the risk for banks who partner with us on the loans and allowing borrowers to make a low down payment and access a fixed-rate loan for as long as 20 years."
In 25 years, the Indiana Statewide CDC has helped create or save more than 28,000 jobs in Indiana with SBA 504 loans. A recent national study of the program said borrowing companies return $94 in tax revenue for every $1 of SBA 504 funding they receive.
About the National Association of Development Companies (NADCO):
Created in 1981, the National Association of Development Companies is the trade association for America's Certified Development Companies (CDCs). Certified by the U.S. Small Business Administration, CDCs are community-based economic development organizations that serve their local communities and states, and are dedicated to the promotion of small business expansion and job creation through SBA's 504 Loan Program. In addition to the 504 program, many CDCs also provide small businesses with access to other Federal, state and local economic development loan programs. These programs can provide both long and short term funding for borrowers.
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