SBA Ready to Restore Its 504 Refinance Program

VIENNA TOWNSHIP, Ohio – The U.S. Small Business Administration has restored the 504 Refinance Program, a measure that should help small-business owners put their enterprises on a surer footing and grow, James F. Donato told bankers Thursday.

The executive director of Mahoning Valley Economic Development Corp., Michael R. Conway, suggested the restoration would be “a game-changer” for small businesses here.

Addressing MVEDC’s annual lenders’ appreciation breakfast, Donato, deputy district director for the SBA’s northern Ohio office in Cleveland, said that President Obama’s signing the budget Congress passed last month should make it easier for small-business owners to expand their enterprises.

In the federal budget is funding that allows the SBA to restore the 504 refinance program, first offered as part of the stimulus package Congress passed during the Great Recession to counter its toll on small businesses. With the recovery, it was allowed to lapse, Donato noted.

The SBA 504 program allows small-business owners to use loan proceeds to buy land and buildings, renovate or convert buildings they own, finance the construction of new buildings and buy long-term machinery and equipment. It cannot be used as working capital or to finance inventory or consolidate, repay or refinance debt,

The refinance program changes that, Donato said.

Conway suggested, “The changes to SBA 504 will be a game-changer. I think there’s a pent-up demand for refinancing throughout the Valley. And owners will have working capital to grow their businesses.”

Last year MVEDC lent to 48 businesses that resulted in them retaining 217 jobs, Conway said. He expects that number to be higher this year.

The only down side to his news, Donato said, is “Don’t expect to see anything before June” because it will take at least that long to restore the SBA machinery to administer the restored program made permanent. “Small-business owners can refinance” the mortgages lenders hold on “their commercial real estate,” he said.

While the SBA can guarantee loans to small businesses of up to $5 million – up to 85% of the first $150,000 on 7(a) loans and 75% of a balance up to $5 million, Donato said the Cleveland office has placed a renewed “focus on the lower end of lending, “$150,000 or less.”

The SBA usually charges the borrower a small fee up front for guaranteeing that he will repay the bank. It does not charge a fee on loans of $150,000 or less with a one-year term or shorter.

In the 28 counties the SBA Cleveland office serves, the strength of the recovery is shown by the 1,900 loans it facilitated in 2015, Donato said, compared to 700 in 2008, the only full year of the Great Recession that ended in June 2009. In 2015, Donato related, the SBA guaranteed $392 million lent, a record, and the average SBA loan was $206,000.

Other good news, Donato announced: the SBA is reducing by half the fees it imposes for guaranteeing loans that exceed $350,000 and no fee on loans of less than $550,000. The SBA website, not updated, says the agency charges 3% on loans of $150,000 to $700,000 and 3.5% on loans that exceed $700,000.

MVEDC honored Dan Schiavone as “Lender of the Year” for being the economic development agency’s most active small-business banker. Schiavone is in the Commercial Lending Department of Farmers National Bank.

He accepted his plaque of recognition but declined comment. Afterward, he remarked on the satisfaction he gets in watching his clients succeed.

Of the eight banks that work with MVEDC, Huntington Bank and First National Bank of Pennsylvania tied in 2015 for the most loans made. Because Huntington lenders had a “higher total loan amount,” it won the MVEDC Perpetual Plaque a fifth consecutive year, Conway said.

Donato urged the bankers to recruit their customers to enroll in the SBA’s “Emerging Leaders” program, a free seven-month program held at Youngstown State University.

This will be the sixth year YSU has offered classrooms where 15 to 20 small-businessmen meet every other week. While there’s no tuition, the time commitment is considerable, Donato said. (He earned his MBA at Cleveland State University.)

The participants “must have potential” to increase their business,” Donato said. “It’s for small companies in growth mode.”

The SBA official called Emerging Leaders “a Cliff’s Notes version of an MBA.”

Pictured: MVEDC honored Dan Schiavone from the commercial lending department of Farmers National Bank as “Lender of the Year.”

Copyright 2022 The Business Journal, Youngstown, Ohio.