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504 Debt Refinancing -

Not This Year

Subsidy stands in the way

There is consensus within the Senate Committee on Small Business and Entrepreneurship that the 504 debt refinance, first introduced in the Jobs Act of 2010, is a good thing. 

Committee Chairman Mary Landrieu (D-LA) and Ranking Member Jim Risch (R-ID) have come to an agreement to permanently reinstate the 504 Debt Refinance in any fiscal year in which the regular 504 Program has a zero subsidy rate (i.e. does not require an appropriation/subsidy to fund program losses).  Before the meltdown of 2008, the SBA 504 Program consistently enjoyed a zero subsidy rate.  Today, however, the subsidy rate is 1.71% and FY 2014’s subsidy rate - as set in the President’s Budget - remains at that same level. 

So where do we go from here?  NADCO, the SBA 504 trade association, is working on a fee package that would eliminate that subsidy, but to-date the efforts have not produced a viable solution.  The 504 industry remains hopeful a creative compromise will be reached in FY 2014, but absent that CIC and it's lending partners will have to wait until the President’s FY 2015 budget is released in February to see what lies ahead for the 504 Debt Refinance. We expect a significant improvement in the subsidy rate at that time -  based on SBA reports that both the portfolio and program recoveries are improving significantly - but factors in addition to 504 Program performance also effect the subsidy rate.*

As always, we will keep you posted.


*The SBA 504 subsidy rate is determined using an econometric model that predicts future program losses.  The model uses program performance together with macro economic factors such as unemployment and commercial real estate trends to arrive at a rate.


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CIC is an economic development lender contributing financial expertise and practical guidance to small business entrepreneurs in Connecticut and Rhode Island who have powerful ideas and need more power to grow them.