June 26, 2009

With yesterday's publication in the Federal Register of an interim final rule allowing 504 refinances, a major change is beginning in the 504 program.

Conventional wisdom was that 504 loans could not allow for refinancing. In fact, heretofore, there was and remains, a way to accommodate refinances under a 504 structure, by excluding the refinanced debt from the 504 project cost and wrapping the pre-existing debt in the new 504 first position third party permanent loan. As the preceding bit of syntax proves, it was possible, but not particularly straightforward.

The new rule, which is a permanent change to the program, allows the debt to be refinanced within the 504 project cost. This basically means: a simpler structure for the final loan and a larger CDC financed portion. This has some very distinct benefits not the least of which is access to long term fixed rates and a long term amortization.

That being said, there are restrictions on the eligibility of debt for refinance, the primary being that it cannot exceed fifty percent (50%) of the total 504 project cost. This essentially means that a borrower would have to be contemplating a significant expansion of an operation to be eligible, which in today's environment narrows the field.

So even with the various limitations, we have crossed the proverbial Rubicon. Which crossing brings us to H.R. 2527. This bill which was recently introduced in the House by Rep. Betsey Markey (D) of Colorado, allows, for a two year period from enactment, for a very broad based refinance capability under the 504 program. Generally the reception to the concept has been very positive. So, the possibility of further significant changes to the 504 program, possibly by the end of the year as part of a broader legislative initiative, is real.

With so many variables at play, perhaps you would like to add a constant to the equation. IDS and our network of partner CDC licenses, now covering some eighteen states, might be the one change you need to make.

Welcome to the Revolution.

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