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How Small Businesses Can Refinance Debt

If you’re a small business owner seeking some debt relief, the Small Business Administration (SBA) might be able to help. Indeed, the SBA’s 504 Refinance Program was made permanent in late May 2016.

According to an SBA statement:

“The 504 loan program with its long term fixed-rate can help refinance debt from adjustable rate loans with significant savings to borrowers. Paying off existing loans with a new loan at a lower cost can help increase cash flow, which can be especially helpful in a resurgent economy.”

The SBA began accepting refinancing applications on Friday, June 24. The SBA is authorized to approve up to $7.5 billion for the regular 504 Loan Program and $7.5 billion in lending authority under the 504 Debt Refinancing Program, which brings the total 504 lending combined authorization to $15 billion, the organization said.

Debt that qualifies for refinancing includes  “Eligible Fixed Assets” — one or more long-term fixed assets, such as land, buildings, machinery, and equipment, acquired, constructed or improved by a small business for use in its business operations, the SBA says. There’s also a lengthy list of qualifiers and requirements for the refinancing program.

Debt and Small Business Job Creation

Meanwhile, refinancing can deliver upside for the broader U.S. economy. Indeed, small business debt refinancing can be a key step toward small business job creation.

Consider this: Only about 31 percent of new jobs are now created by small businesses, down from 58 percent in the 1980s, according to M&T Bank. The Fool.com offers this analysis:

“The problem is that getting loans has gotten harder for small businesses, which tend to fall between the cracks at the nation’s biggest banks. Consumer loans such as mortgages and credit cards benefit from a standardized and streamlined origination process. Loans to big businesses offer economies of scale, which offset the individualized attention that’s needed to analyze a business’ creditworthiness. But loans to small business offer neither of these advantages.”

No doubt, the SBA and many alternative funding sources — such as online funding or lending systems — are seeking to empower small businesses with fresh capital.

Small business debt defaults skyrocketed after the 2008 financial crisis, but returned to more typical levels by about 2014.

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