SBA refinancing with 'cash out' draws attention

Lenders who specialize in handling real estate and equipment loans guaranteed by the Small Business Administration expect that northern Nevada borrowers will be drawn to a refinancing program that potentially can provide working capital for some of them.

Under a lending program that was rolled out at the start of this month, borrowers who refinance through SBA-guaranteed real estate loans "SBA 504 loans" as they're known in the business for the first time can use up to 15 percent of the proceeds for other business operating expenses.

"The cash-out option is an eye-opener. We're already talking with several businesses," says Adrien Burney, an executive vice president and loan officer in the Reno office of Nevada State Development Corp., a nonprofit organization that specializes in SBA 504 lending.

Burney says the refinancing program and the availability of part of the proceeds for other business purposes most likely makes sense for long-time owners of commercial, office and industrial buildings who have been steadily paying down their debt.

The owner must occupy at least 51 percent of the building to quality for the SBA program.

For those borrowers, Burney says the new SBA refinancing rules will shake loose cash that business owners can use to help jumpstart the local economy.

"Cash locked up in a long-term asset doesn't help the economy," she said.

Jerry Murphy, a longtime SBA lender who works in Reno as vice president and business development officer for CapitalSource Small Business Lending, says more liberal rules on valuation of buildings to be refinanced also will help drive business for the SBA lending program.

"It's going to be extremely helpful," he said, noting that previous standards on valuation and appraisals had severely hampered a year-old effort by the SBA to provide refinancing of real estate and equipment loans.

Burney noted that the new rules come as SBA 504 lending has been perking up in northern Nevada.

In the federal fiscal year that ended Sept. 30, Nevada State Development Corp. won approval for 31 loans in the SBA 504 program, and those loans supported approximately $35 million in real estate transactions.

By comparison, she noted, the peak years of the real estate boom saw approval of about 50 loans a year. In 2009, the bottom of the recession, Nevada State Development Corp. saw approval of only nine loans.

The new refinance program, she noted, expires on Sept. 28, 2012, or when the SBA runs through the $7.5 billion earmarked for the program nationwide.