SBA Tries to Ride to the Rescue on Balloon Payments

The U.S. Small Business Administration (SBA) will launch a program later this month to help small businesses refinance their commercial mortgage debt, especially in areas where they face a significant hike in payment requirements known as "balloon payments."

Starting February 28, small businesses contending with maturing commercial mortgages will be able to apply for temporary, 504 loans from SBA. It's part of a new refinancing loan program sparked by the ongoing struggles of the real estate sector and their collateral effects amid the tepid, if not delayed, economic rebound.

"The economic downturn of recent years and the declining value of real estate have had a significant, negative impact on many small businesses with mortgages maturing within the next few years," said SBA Administrator Karen Mills. "As a result, even small businesses that are performing well and making their payments on time could face foreclosure because of the difficulties they face in refinancing and restructuring their mortgage debt."

Businesses eligible to apply include those with the greatest perceived need: those facing a balloon payment before the end of 2012, said SBA. Borrowers must commit at least 10% equity and work with approved third-party lenders. They will be able to refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower. Refinancing costs also can be covered, though no other business expenses are eligible. It is estimated by SBA that upwards of 20,000 U.S. small businesses could benefit from the program, which tweaks/relaxes some of the terms of previous 504 program loans.

Brian Shappell, NACM staff writer

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