SBA rules · SOP 50 10 8.1
Can you refinance an SBA loan?
Yes, existing SBA-guaranteed 7(a) and 504 loans can be refinanced with a new 7(a) or 504 loan, subject to program-specific conditions, mandatory payment reduction or substantial benefit rules, advance notice requirements, and strict loan currency standards.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- Refinancing with a 7(a) loan: A 7(a) loan may refinance another lender's 7(a) loan, or a same-institution 7(a) loan via delegated processing if terms cannot be modified due to secondary market investors or an increase is not possible. A 7(a) loan may also refinance an existing 504 loan if both the Third Party Loan (TPL) and 504 loan are refinanced, or if the TPL is paid in full and the refinancing funds expansion or renovations, but it may not solely refinance the TPL.
- Refinancing with a 504 loan: Under 504 debt refinancing with expansion, an existing 7(a) loan may be refinanced in whole or in part, whereas an existing 504 loan may only be refinanced in whole. For any 504 refinancing of an existing 504 loan (with or without expansion), either both the TPL and 504 loan must be refinanced together, or the TPL must already be paid in full.
- Advance notice requirement: For any 504 project that refinances an existing 7(a) or 504 loan, the CDC must notify the existing 7(a) Lender or CDC in writing at least 10 business days in advance.
- Payment reduction and substantial benefit: Under the 7(a) program, refinancing requires the new installment payment to be at least 10 percent less than the existing installment amount in aggregate. Under the 504 program, refinancing a federally guaranteed loan must provide a substantial benefit by lowering the installment payment attributable to the refinanced debt.
- Loan currency requirement: The debt being refinanced must have been current for at least the prior 12 months, and an applicant is ineligible if an existing 7(a) or 504 loan is not current (more than 29 days past due or matured without payment within 29 days) when the new loan number is issued.
The source
What the SOP says
“Refinancing a same institution 7(a) loan: A Lender may refinance its own 7(a) loans via delegated processing only if: It is unable to modify the terms of the existing loan because a secondary market investor will not agree to modified terms, or An increase in the amount of an existing SBA-guaranteed loan is not possible.
“Refinancing a 7(a) loan of another Lender. Proceeds may be used to refinance existing 7(a) loans from other Lenders provided the conditions of this Appendix are met. Any applicable subsidy recoupment fees will apply.
“Refinancing a SBA 504 with a 7(a) loan. Refinancing an existing 504 loan can be processed by non-delegated or delegated authority if: The conditions of this Appendix are met, and either; Both the Third Party Loan and the 504 loan are being refinanced; or The Third Party Loan has been paid in full and the 504 loan needs to be refinanced as part of a larger transaction to provide funding for expansion of or renovations to the Project Property.
“An existing 7(a) loan may be refinanced in whole or in part. A 504 loan may only be refinanced in whole. The CDC must notify an existing 7(a) or 504 Lender in writing by letter or email no less than 10 business days to advise them the existing loan is being refinanced.
“An existing 504 loan if both the Third Party Loan and the 504 loan are being refinanced or the Third Party Loan has been paid in full, and The CDC has notified the existing CDC or 7(a) Lender in writing by letter or email no less than 10 business days to advise them the existing loan is being refinanced. The notification must be included in the loan submission.
“When refinancing debt, the new installment payment amount must be at least 10 percent less than the existing installment amount(s) in aggregate.
“The business is ineligible if the Applicant business has an existing 7(a) or 504 loan that is not current at the time of issuance of the new 7(a) or 504 SBA loan number. “Current” means that a required payment has not remained unpaid for more than 29 days. A loan that has matured and not been paid within 29 days of the maturity date is not current and is not eligible for refinancing.
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.