Business Owners Greatly Benefit from 504 Debt Refinance Program

Eddie Wilson avoided taking out a Small Business Administration (SBA) loan for a long time. But in 2012, he turned to Texas Certified Development Company (TxCDC) to help him deal with a balloon payment on a mortgage note on the North Austin location of Threadgill’s Restaurant. TxCDC’s staff pointed Wilson to a 504 Debt Refinance loan, thus ensuring that the legendary restaurant would continue to thrive.

Refinancing A Good Businessman Caught in a Bad Economic Recession
Like many small business owners, Wilson tried to make the right decisions to grow his business. He had purchased the iconic location in the early 1980s, changing its format from a tavern where rednecks, beatniks, hippies, folkies and musicians such as Janis Joplin had once converged into a Southern-style restaurant. Based on the success of the restaurant’s new format, Wilson opened Threadgill’s World Headquarters in South Austin in 1996.

During the course of his ownership, Wilson modified his original mortgage on the North Lamar location several times in order to have funds available for renovations and to make repairs after a fire damaged the restaurant. Although he made all of his mortgage payments on time, Wilson got caught in the national recession when his lender could not renew the note due to the bank’s deteriorated capital. That sent Wilson scrambling for replacement funding. Thanks to TxCDC, he was able to use the Temporary Refinance Loan program to borrow 90 percent of the current appraisal on the North Lamar restaurant and place it on loan at a rate of 3.92 percent over a 20-year period. The financing was divided between the bank (50 percent) and the SBA (40 percent). Wilson was responsible for the remaining 10 percent of the amount using equity already existing on the building.

Potential Reauthorization of Debt Refinance Program
Wilson is just one of many small business owners who benefited from this loan program before it expired in September 2012. Nationally, 2,700 businesses that had a mortgage for at least two years were able to take advantage of these favorable terms to refinance nearly $7 billion in old, expensive and often poorly structured debt.  “The measure literally saved thousands of businesses in communities across the country during the recession, helping them accelerate the economic recovery,” an SBA press release stated.

However, the window to get this type of loan was very short. The Debt Refinance program was originally enacted as part of the Small Business Jobs Act of 2010, but didn’t become fully operational until February 2012. This delay significantly shortened the period of time that businesses could use 504 loans to refinance qualifying existing debt.

Now U.S. legislators are considering reauthorizing the program, which is part of the Commercial Real Estate and Economic Development (CREED) Act. Senator Mary Landrieu (D-LA) and Senator Jeanne Shaheen (D-NH) have introduced a five-year extension of the Debt Refinance program as part of the CREED Act that would, if passed, offer capital access to more than 250,000 additional U.S. businesses, saving them up to $20,000 per month. The saved money will be used to fuel economic growth. The CREED Act has had hearings by the Senate Committee on Small Business and Entrepreneurship, which Landrieu chairs. A similar measure has been introduced in the House Small Business Committee by Rep. Judy Chu (D-Calif). That measure has eight co-sponsors.

TxCDC Officials Encourage Legislators to Act
TxCDC officials met in mid-March with members of Congress and their aides to discuss the importance of extending the Debt Refinance program.  During these meetings, TxCDC President Suzanna Caballero and Loan Processing Marketing Specialist Blyth Rehberg reinforced how this loan program has helped many Texas small business owners survive the recession and how passage would help more owners invest in their businesses, thus accelerating the nation’s economic recovery.

Caballero believes this program provides critical help to small business owners as the economy improves. “The 504 Debt Refinance program provides bankers and borrowers a valuable way to restructure existing debt so the business owner can take equity from their building to use for growth or to restructure debt,” she said. “Often the payments are lower than before because of the very low interest rates on 504 loans and its longer, 20-year amortization.”

Many national policymakers (including the SBA) and organizations agree that the program needs to be continued. “While Congress may be divided on many issues, everyone can agree on a zero-cost, smart mechanism like the Commercial Real Estate and Economic Development (CREED) Act to help small businesses access capital to create the jobs America needs,” said National Association of Development Companies (NADCO) Chief Executive Officer Beth Solomon. “Extending the SBA’s highly-successful 504 Debt-Refinance program would unleash billions of dollars in capital currently locked up in the assets of our nation’s small businesses. This is a no-brainer for both sides of the aisle.”

Tips for Contacting Your Legislator

Small business owners and bankers are encouraged to contact their U.S. legislators to encourage support for the passage of the CREED Act. You can either contact them in person (via phone or appointment) or by written correspondence (letter or email). To help make it easier for you to do so, TxCDC Loan Processing Marketing Specialist Blyth Rehberg offers some recommendations.

If contacting legislators or their staff in person:

  • Know something about the lawmaker you are visiting. At least know his/her background, party affiliation, home town and whether he/she sits on the Small Business Committee.
  • Remember that all politics are local.
  • Be concise.
  • Know what you are going to ask the legislator to do.
  • Focus on your legislative priorities.
  • Be confident.
  • Discuss at least two examples of successful 504 projects in your representative’s district or senator’s state. Ideally these examples are companies that legislators and their aides may have heard of, and/or projects in areas of the state that are known to be in great need for jobs and economic development.
  • Always follow up with a thank you letter. A template of this type of letter to send to U.S. Senators is provided here while the template for letters to U.S. Representative is listed here.
  • Never threaten or berate a member of Congress or their staff.
  • Don’t forget why you are there. Do not go on and on.
  • Don’t ignore questions they ask. If you don’t know the answer, don’t make up an answer. Just tell the lawmaker that you don’t know and that you will get back to him/her promptly.
  • Don’t be impatient.
  • Never discuss political contributions in a meeting with a member of Congress.

If contacting legislators through written correspondence: Rehberg also provided examples of letters for lenders and small business owners to use for written interactions with legislators.

For information on reaching your legislator, click here.

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