Refinancing an SBA loan can significantly save money on interest payments and improve your overall financial situation. With the right refinancing strategy, you can reduce your monthly payments, extend your loan’s repayment terms, or lower your interest rate. Here’s what you need to know about refinancing SBA loans.
The Small Business Administration (SBA) offers several government-backed loans to help small businesses with their financing needs. These include 7(a) and 504 loans, which are popular among business owners due to their low interest rates and flexible repayment terms.
Please read our article about SBA Loan Status Disbursed Current. Additionally, learn more about Bankruptcy Clear SBA Loans!
Because the federal government backs these loans, they often come with added protections not found in traditional bank financing. For example, SBA lenders typically offer more lenient credit requirements than most banks, making it easier for small businesses to qualify for funding.
Can You Refinance SBA Loans?
Yes, SBA loans can be refinanced under certain circumstances. The SBA offers a loan program designed explicitly for refinancing existing debt called the SBA 7(a) Refinance Loan program. This program allows businesses to refinance existing debt that does not have SBA financing, including conventional loans, lines of credit, equipment loans, and other business debt.
However, like any other loan product, SBA loans still require borrowers to make regular repayments on time to avoid defaulting on debt obligations. As a result, many business owners struggle to keep up with payments and face mounting debt levels as interest charges accumulate over time. Fortunately, there is an option available: refinancing an SBA loan.
Refinancing involves taking out a new loan and using it to pay off the balance on your existing debt obligation – in this case, your SBA loan. This approach allows you to reduce your monthly payments or extend the repayment length if necessary while potentially lowering your interest rate. Depending on how much money you can save through refinancing, this could be a great way to free up extra cash each month while ensuring that all your debts remain manageable.
Can an SBA 7a loan be refinanced?
Yes, an SBA 7(a) loan can be refinanced. You can use the SBA 504 program to refinance existing SBA 7(a) loans. However, refinancing an SBA 7(a) loan with another SBA 7(a) loan is generally not allowed.
The SBA 7(a) loan program allows borrowers to refinance existing debt under certain circumstances.
The SBA offers a loan program designed explicitly for refinancing existing debt called the SBA 7(a) Refinance Loan program. This program allows businesses to refinance existing debt that does not have SBA financing, including conventional loans, lines of credit, equipment loans, and other business debt.
To be eligible for the SBA 7(a) Refinance Loan program, the borrower must have been current on all payments for the past 12 months, and the refinanced debt must be for a business purpose. The borrower must also meet the SBA’s eligibility requirements for the 7(a) loan program, including having a good credit history, demonstrating the ability to repay the loan, and meeting the SBA’s size standards.
- The existing debt must be for a business purpose: The SBA requires that the current debt being refinanced be used for a business purpose. This includes debt incurred to finance the purchase of equipment, real estate, or other business assets.
- It would help if you had a score of at least 690
- You can not have bankruptcies in the past three years
- Your minimum down payment of 10%
- The borrower must have been current on all payments for the past 12 months. The borrower must have a good payment history for the refinancing debt, which means the borrower must have made all payments on time for the past 12 months.
- You should have a clean criminal history
- You should have no current federal debt
- The borrower must meet the SBA’s eligibility requirements: To be eligible for an SBA 7(a) loan, the borrower must have a good credit history, demonstrate the ability to repay the loan and meet the SBA’s size standards. The borrower must also have been in business for at least two years.
- The loan being refinanced must not have been previously refinanced under the SBA 7(a) program: The SBA generally does not allow borrowers to refinance an SBA 7(a) loan with another SBA 7(a) loan. However, other SBA loan programs can be used to refinance existing SBA 7(a) loans.
- The borrower must demonstrate a benefit from refinancing: The borrower must be able to indicate that refinancing the debt with an SBA 7(a) loan will benefit the business, such as a lower interest rate or a longer repayment term.
Conclusion
Before deciding whether or not refinancing is right for you, several factors should be considered, including the current market conditions and your ability to obtain a competitive interest rate from another lender. Additionally, there may be fees associated with closing out your original loan. Hence, it’s important to weigh those costs against any potential savings before deciding whether refinancing is worth pursuing at this time.
Ultimately, refinancing an SBA loan can be an excellent way for small business owners struggling under their current debt obligation load to get back on track financially and start moving towards meeting their long-term goals once again. By carefully considering all of the relevant factors involved in such a decision and doing thorough research beforehand, business owners should have no problem finding options that work best for them when it comes time to refinance their SBA loan debts successfully.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com