Small businesses seeking to expand will be able to refinance existing loans used to purchase real estate and other fixed assets as a result of permanent changes to the SBA's 504 loan program, the agency announced today.

Authorized in the American Recovery and Reinvestment Act of 2009, the legislation allows 504 program projects to include a limited amount of debt refinancing if there is a business expansion and the debt refinanced does not exceed 50% of the projected cost of the expansion. "Expansion" includes any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business.

Borrowers are eligible for refinancing if the debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program, the SBA said. Other eligibility conditions include the collateralization of the existing debt by fixed assets or that it was incurred for the benefit of the small business. Refinancing is also an option if the new financing provides a "substantial" benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account, and if the borrower has been current on all payments of existing debt for one year prior to the date of refinancing.