SBA Debt Refinancing
Since the great recession access to capital has been restricted for many small businesses. Without bank-rate financing available, many small business owners have resorted to seeking high interest rate financing and other forms of alternative business loans to cover their company’s needs.
Unfortunately, the higher-interest rates these lenders charge end up costing the businesses a considerable amount of money that could have been going back into the business to cover working capital, expansions, reinvestment.
Even more, every dollar paid in interest is one less dollar in profit. For small companies looking to refinance their business debt, an excellent option would be an Small Business Administration enhanced loan used by many firms as a refinancing lifeline. But to understand SBA refinance one must first understand what an SBA loan is.
What is SBA Debt Refinancing?
SBA loans are form of financing in which the government entices banks and other business lenders to provide capital to small businesses through the use of a guarantee. An SBA guarantee means the government will cover between 50-90% of the losses should the borrower fail to repay the loan. By covering a large percentage of the banks’ losses (reducing their lenders’ risk) the SBA hopes to make it more likely the bank will approve funding to a small business that is borderline creditworthy. With rates between 5-8% and terms between 5-25 years (depending on program and loan uses) refinancing debt through SBA loans offer among the most affordable lending solutions for growing small firms.
Advantages of Refinancing Debt With an SBA Loan?
- Rates between 5-8%
- Terms ranging from 5-10 years
- Refinancing real estate mortgages up to 25 years
- Better cash-flow
- Improve debt coverage
- Consolidate business debt into one payment
- Lower fees
Do I Qualify For an SBA Loan?
To qualify for an SBA loan with refinance purposes, the company must meet all of the SBA eligibility requirements, the existing debt to be refinanced must be on reasonable terms, and the reduction in debt payment must be at least 10%.
What Debt Isn’t Eligible For SBA Refinance?
- Debt facility structured with balloon payment
- Existing business debt has an interest rate higher than SBA maximum
- Credit card debt
- Over-collateralized debt
- A revolving line of credit in which the original lender refuses to renew the credit facility
- Debt from the same institution you are seeking an SBA loan with (except certain circumstances)
- Debt in which the original lender will sustain a loss
- Debt owed to a SBIC
- Debt from prior SBA loan (except for certain circumstances)
- Seller take-back financing