Ordinarily, if a borrower with an SBA 504 loan (which is in a second lien position to a bank loan) needs to improve or renovate the 504 loan’s collateral, the bank adds debt to their first lien note, and the SBA subordinates the 504 loan to the additional debt. However, SBA has expanded this ability. Through the end of 2021, SBA has empowered Certified Development Companys (CDCs) to unilaterally approve subordinations of 504 loans to additional debt added to the first lien note, and that debt can be used not just for improvements to the collateral, but for working capital as well.

If you have a 504 borrower in your portfolio that would like to cash out some of the equity on their property, give us a call!