Debt Refinancing Using SBA

Written by CMG News Contributor, Doug Carleton

Interest rates are low right now. If your business has an existing debt with rates higher than the current market rates, an SBA loan - if qualifiable - could increase your cash flow. One of the SBA's original and most important goals was to help small businesses improve their cash flow. The tool used to accomplish this goal was by offering longer-term financing than banks typically offer. Under SBA guidelines, real estate can be amortized for up to 25 years; machinery and equipment for up to 10 years; and working capital for up to 7 years. The following is a list of a few of the requirements that you must meet for a loan or debt to be eligible for SBA financing:

  • The payments on the refinanced SBA loan are at least 10% lower than the existing payments.

  • Refinancing of existing credit card debt, if used for business purposes. Think about taking that credit card balance and amortizing it over seven years at a low SBA interest rate. Note: Receipts and past statements may be needed to support that the purchases were for business purposes.

  • Increase in value or equity. If the collateral value used to secure the original loan is now more significant than the balance, it could qualify. In today's hot real estate market (as long as you don't own buildings in places like New York City's financial district), values may have increased. Thus, providing you with adequate collateral to refinance the existing balance at a low rate SBA loan.

  • If the existing debt originated as a business acquisition loan and the business has performed well for at least two years, this may also qualify for SBA refinancing.

  • Loans that have a pending balloon payment in the repayment structure may also qualify. Banks often structure real estate loans on longer terms - say 20 years - but they have a balloon payment in place at the five or 10-year mark triggering the need to refinance or repay the loan in full. These balloon payments allow banks to readjust the rate based upon current market conditions. Balloon payments and rate call provisions are not permitted with SBA loans. So, if you refinance now during the low-rate economy, your rate will not change throughout the entire loan term.

In today's interest rate environment, refinancing or consolidating debt into one loan - (at a lower rate and longer-term) - has never been more attractive. With the economy improving at seemingly breakneck speed, the opportunity to increase cash flow by refinancing could enable your business to buy more inventory or equipment or even upgrade your space. Anything with the potential of increasing your cash flow may be worth considering, and an SBA loan may be just the ticket.

This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at