Can an SBA loan pay off business credit card debt?

“Credit Card Debt Used for Business Expenses - The Applicant must certify that the proceeds from the debt were used exclusively for the Applicant’s business and were not used for any ineligible purpose as set forth in 13 CFR § 120.130. If a Lender submits a loan with proceeds refinanced from credit card debt where the Applicant certified that the proceeds from the debt were used exclusively for the Applicant’s business, but the Applicant certification is determined to be invalid, SBA will not use this as a basis to deny or repair the guaranty purchase request. The Lender can rely on the Applicant certification;

“The debt to be refinanced must be, and must have been, current for at least the last 12 months or for the life of the loan, whichever is less. “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.

“The following exception applies: Debt (short-term or long-term) structured with a demand note or balloon payment, credit card obligations and HELOC used for business-related purposes, and revolving lines of credit (short-term or long-term) where the original lender is unable or unwilling to renew the line or the Applicant is restructuring its financing in order to obtain a lower interest rate or longer term;

“Include, when applicable, a copy of the most recent credit card statement evidencing the holder of the account and the current balance.

“When refinancing debt, the loan application must include: A written analysis that addresses the following issues: The reason the debt was incurred; The factor(s) that support that the proposed refinancing will not pay a creditor in a position to sustain a loss; The reason for restructuring the debt (for example, over-obligated or imprudent borrowing); How the new loan will improve the financial condition of the Applicant; An itemization of all debts being repaid by loan proceeds when the individual creditor is to be paid $10,000 or more, and/or the loan number and dollar amount of any existing SBA being debt refinanced The reason(s) the Lender believes the debt to be refinanced no longer meets the needs of the Applicant

“All general debt refinancing requirements apply. A written credit memorandum is not required; however, supporting documentation for the debt being refinanced must be retained.

“Lenders must maintain copies of all notes being refinanced, security agreements, leases, transcripts for the most recent 12 months (to prove debt being refinanced is current) or other documentation evidencing the debt to be refinanced in the loan file. For non-delegated loans, Lender must submit copies of all these documents for the debt to be refinanced to the LGPC with the application.

“In the Use of Proceeds section, the refinancing must be specifically identified; An itemization of all debts being repaid by loan proceeds when the individual creditor is to be paid $10,000 or more; and/or The loan number and dollar amount of any existing SBA being debt refinanced.