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Refinancing Debt with the SBA

It is possible to refinance loans that small businesses have outstanding with the SBA 7(a) loan program. Basic requirements include that the purpose of the original loan(s) would have been SBA eligible.  The proposed loan needs to provide the borrower with a substantial benefit demonstrated by the payment amount being at least 10% less that the existing loan. A written justification for each loan must also be provided as to why the current loan is not on reasonable terms.  Examples of unreasonable terms may include:

• a demand or balloon maturity feature in the existing note or the current maturity is not appropriate for original purpose
• the existing debt being refinanced is on a revolving line or a credit card
• interest rate exceeds SBA’s maximum
• loan is over-collateralized
• line of credit lender is unwilling to renew
• debt was used for change of ownership  (seller financing must have performed for 24 months.)

Refinancing of same financial institution debt is possible but must document a 36 month payment history with no unjustified past dues (> 30 days). Refinancing of an existing SBA loan is generally not allowed but may be considered if the borrower has new financing needs that the existing lender has declined or the existing lender has refused to modify the terms of the existing SBA loan to accommodate the new loan.