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SBA 504 Refinance Rules in Vermont: What Business Owners Need to Know
As a Vermont business owner, you know that managing finances is a crucial part of running a successful business. However, with the constantly changing market conditions, it can be challenging to keep up with the latest financing options available. One option that business owners in Vermont should be aware of is the SBA 504 Refinance program. In this blog post, we will discuss what this program is, who can benefit from it, and the specific rules that apply to Vermont businesses.
- SBA 504 Refinance Rules in Vermont: What Business Owners Need to Know
- A Real Vermont Business Owner’s Story
- What is the SBA 504 Refinance Program?
- Who Can Benefit from the SBA 504 Refinance Program in Vermont?
- Specific Rules for Vermont Businesses
- Credit Score Requirements for Vermont Businesses
- How Long Does the Approval Process Take?
- 3 Common Mistakes Vermont Business Owners Make
- A Real Case Study: Vermont Business, Burlington, Real Numbers
- FAQ: Common Questions Business Owners Ask
- Ready to Refinance? Contact GHC Funding
A Real Vermont Business Owner’s Story
Before we dive into the details of SBA 504 Refinance rules in Vermont, let’s start with a real business owner’s story. Meet Sarah, the owner of a small retail store in Burlington, Vermont. Sarah has been in business for over 10 years and has seen steady growth in her sales. However, with the recent economic downturn, Sarah’s business has been struggling to keep up with the high monthly mortgage payments. With her credit score taking a hit due to late payments, Sarah is worried about the future of her business.
This situation is not uncommon for many business owners in Vermont, especially in cities like Burlington, Montpelier, and Rutland. The unpredictable market conditions and high costs of doing business can quickly put a strain on a business’s finances. This is where the SBA 504 Refinance program can be a game-changer for Vermont businesses.
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What is the SBA 504 Refinance Program?
The SBA 504 Refinance program is a loan program designed to help small businesses refinance their existing commercial real estate debt. This program is a part of the Small Business Administration’s (SBA) 504 loan program, which is a financing option for small businesses that need to purchase or improve commercial real estate or equipment. The primary goal of the SBA 504 Refinance program is to help businesses reduce their monthly mortgage payments and improve their cash flow.
Under this program, a business can refinance up to 90% of the current appraised value of their commercial property. The loan is divided into two parts – the first mortgage provided by a lender, typically a bank, for 50% of the property value, and the second mortgage provided by a Certified Development Company (CDC) for up to 40% of the property value. The remaining 10% must be paid by the business owner as a down payment.
One significant advantage of the SBA 504 Refinance program is that it offers long-term, fixed-rate financing. This means that businesses will not have to worry about fluctuating interest rates or balloon payments. The loan term can be up to 25 years for commercial real estate and up to 10 years for equipment.
Who Can Benefit from the SBA 504 Refinance Program in Vermont?
The SBA 504 Refinance program is available to small businesses that own and occupy at least 51% of their commercial property. Businesses must also have been in operation for at least two years and have a good credit history. This program is an excellent option for businesses that have high-interest rates on their current mortgages or those facing difficulty making their monthly payments.
In Vermont, where many businesses are struggling to stay afloat, the SBA 504 Refinance program can be a lifeline. With the high costs of commercial properties in cities like Burlington, many businesses are burdened with high mortgage payments. Refinancing through the SBA 504 program can significantly lower their monthly payments, giving them more breathing room to focus on growing their business.
Specific Rules for Vermont Businesses
While the SBA 504 Refinance program follows general guidelines set by the SBA, there are specific rules that apply to Vermont businesses. These rules are set by the Vermont Economic Development Authority (VEDA), a Certified Development Company (CDC) that works with the SBA to administer the program in Vermont.
First and foremost, Vermont businesses must meet the SBA’s size standards to be eligible for the program. This means that the business must have a tangible net worth of less than million and an average net income of less than million for the past two years. Additionally, the commercial property being refinanced must be located in Vermont and must be a viable business property.
Another essential rule to keep in mind is that the SBA 504 Refinance program does not allow cash-out refinancing. This means that businesses cannot take out more money than needed to refinance their existing mortgage. The purpose of this program is to help businesses lower their monthly payments, not to provide additional cash for other purposes.
Finally, Vermont businesses must provide proof that they have been making timely payments on their current mortgage for the past 12 months. This is to ensure that businesses are not using the program to default on their existing loans. In the case of Sarah, the business owner we mentioned earlier, this rule would require her to make timely payments for the next 12 months before she can apply for the SBA 504 Refinance program.
Credit Score Requirements for Vermont Businesses
While the SBA does not have specific credit score requirements for the 504 Refinance program, lenders and CDCs may have their own minimum credit score requirements. In Vermont, the VEDA requires a credit score of at least 680 for businesses to be eligible for the program. However, businesses with a credit score of 650 or higher may still be considered on a case-by-case basis.
How Long Does the Approval Process Take?
The SBA 504 Refinance program is known for its long approval process, with some businesses waiting up to 9 months before receiving the funds. However, in Vermont, the approval process is relatively quick compared to other states. The VEDA has a streamlined process, and businesses can expect to receive their funds within 4-5 months.
3 Common Mistakes Vermont Business Owners Make
While the SBA 504 Refinance program is an excellent option for Vermont businesses, there are some common mistakes that business owners make when applying for the program. These include:
- Not providing proof of timely mortgage payments for the past 12 months
- Not meeting the credit score requirements set by the lender or CDC
- Not understanding the rules and guidelines of the program, leading to delays in the approval process
By avoiding these mistakes, Vermont business owners can increase their chances of getting approved for the SBA 504 Refinance program.
A Real Case Study: Vermont Business, Burlington, Real Numbers
Let’s take a look at a real-life example of how the SBA 504 Refinance program helped a business in Vermont. XYZ Manufacturing is a small business located in Burlington, Vermont. They have been in operation for 5 years and have a successful track record, but due to the economic downturn, they have been struggling to keep up with their monthly mortgage payments. Their commercial property has an appraised value of $800,000, and their current mortgage balance is $600,000. With a credit score of 690, they were able to refinance their mortgage through the SBA 504 program. Here’s how the numbers break down:
- Refinanced mortgage amount: $720,000 ($600,000 existing mortgage + $120,000 additional financing)
- First mortgage (provided by lender): $400,000 (50% of appraised value of $800,000)
- Second mortgage (provided by CDC): $320,000 (40% of appraised value of $800,000)
- Down payment (paid by business owner): $80,000 (10% of appraised value of $800,000)
- Monthly mortgage payment savings: $1,200
Thanks to the SBA 504 Refinance program, XYZ Manufacturing was able to save $1,200 on their monthly mortgage payments, giving them much-needed breathing room to focus on growing their business.
FAQ: Common Questions Business Owners Ask
1. Can I use the SBA 504 Refinance program to pay off other business debts?
No, the SBA 504 Refinance program is specifically for refinancing existing commercial real estate debt. It cannot be used to pay off other business debts.
2. Is it necessary to provide an appraisal for my commercial property?
Yes, an appraisal is required to determine the current value of your commercial property. This will be used to determine the loan amount you are eligible for.
3. Can I use the SBA 504 Refinance program to refinance a property that is not my primary place of business?
No, the SBA 504 Refinance program is only available for businesses that own and occupy at least 51% of their commercial property.
4. Do I need to provide personal collateral for the loan?
No, the SBA 504 Refinance program does not require any personal collateral. The loan is secured by the commercial property being refinanced.
5. Can I refinance a property if I have an existing SBA loan on it?
No, the SBA 504 Refinance program cannot be used to refinance a property with an existing SBA loan on it.
Ready to Refinance? Contact GHC Funding
If you are a business owner in Vermont and are struggling with high mortgage payments, the SBA 504 Refinance program may be the solution you need. Don’t let market conditions and high costs hold your business back. Contact GHC Funding today to learn more about the SBA 504 Refinance program and how we can help you navigate the process. Our team of experts has helped numerous businesses in Vermont and across the country secure financing and achieve their financial goals. Let us be your partner in success.
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