SBA rules · SOP 50 10 8.1

Do SBA loans have balloon payments?

Balloon payments are prohibited on SBA 7(a) loans, but are permitted on the Third Party Loan of a 504 Project if properly justified and documented.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) loans: SBA rules strictly prohibit balloon payments on 7(a) loans, requiring a stated amortization and loan maturity that fully amortizes the loan by maturity.
504 Third Party Loans: In a 504 Project, a balloon payment is permitted on the Third Party Loan, provided the loan meets the minimum maturity of at least 7 years for a 10-year debenture or 10 years for a 20- or 25-year debenture, is justified in the loan report, and is clearly identified in the SBA Terms and Conditions.
504 debentures: The SOP's rules do not authorize balloon payments for the 504 loan itself, providing only for fixed maturities of 10, 20, or 25 years based upon the remaining useful life of the property being financed.
Refinancing existing balloon debt: While SBA loans may not be issued with balloon payments, existing commercial debt that is structured with a balloon payment is explicitly eligible for refinancing under both the 7(a) and 504 programs.

The source

What the SOP says

“SBA does not allow balloon payments. A fixed interest rate loan must use a payment that will fully amortize the loan by the maturity date.

SOP 50 10 8.1, Appendix 18: 7(a) Interest Rate Requirements > Amortization: (13 CFR § 120.214(e)): (lines 5523-5524)✓ Verified

“7(a) loans are required to have a stated amortization, loan maturity, and may not have a balloon.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Loan Terms and Conditions (lines 5123-5131)✓ Verified

“A Third Party Loan must have a term of at least 7 years when the 504 loan is for a term of 10 years and 10 years when the 504 loan is for 20 or 25 years. If there is more than one Third Party Loan, an overall loan maturity must be calculated, taking into account the maturities and amounts of each loan. If there is a balloon payment, it must be justified in the loan report and clearly identified in the SBA issued SBA Loan System Terms and Conditions. (13 CFR § 120.921(a))

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Loan Maturities (lines 3385-3392)✓ Verified

“Any debt structured with a demand note or balloon payment;

SOP 50 10 8.1, Appendix 14: 7(a) Debt Refinancing Requirements > General Requirements (lines 4932-4944)✓ Verified

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