How an SBA Refinance Can Help Your Business

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September 13th, 2016

Throughout my years of lending to small and mid-sized businesses, I have witnessed the benefits business owner’s experience when using a Small Business Administration (SBA) loan to refinance debt. Whether working directly with the borrower or with a commercial loan broker, it is rewarding to find a way to lower monthly payments for businesses of all sizes. SBA loans can do more than just lower monthly payments, they can also be a “catch-all” loan that enables businesses to roll a few initiatives into one – such as refinancing commercial real estate and purchasing new equipment; which in most cases, means one loan, one monthly payment.  Let’s look a little closer at SBA loan program parameters to understand how your business can qualify to refinance debt. (To read an overview of the SBA loan programs available to you, see our blog post from May 2016.)

There are many reasons to refinance a business loan, as in almost every case the loan is not on “reasonable terms.” Here are some typical and accepted reasons to refinance using an SBA loan:

  • Real estate loan has matured and needs to be refinanced
  • The monthly payment is too high and refinancing would drop the loan payment 10% or more
  • The interest rate is excessive
  • There is insufficient collateral to fully secure the loan
  • The loan term is too short for the collateral financed (for example, a 15 year term on commercial real estate instead of a 25 year term)

Though these are certainly not all of the reasons to refinance using an SBA loan, they are the situations we see most often. The benefits of using an SBA loan program to refinance are many. Let’s consider some of them so you’ll have a better understanding;

  • SBA real estate loans carry loan terms of 20 - 25 years, this is typically significantly longer than most real estate loans offered in the market
  • SBA equipment loans typically are 10 years or the “useful-life” of the equipment being financed
  • Longer loan terms almost always lower the monthly loan payment
  • SBA loans are fully amortizing which means no balloon payments, and no need to refinance after 3, 5, or 10 years like a typical conventional loan
  • If consolidating many debts, it is possible to have one loan for many refinances making one payment to the bank

If you are wondering how your business would perform after a debt refinance, there are documents you can gather for a quick assessment. The following is a list of materials to gather and present to a lender:

  • 3 years tax returns, personally and for all businesses owned
  • Copies of all the promissory notes/loans to be refinanced (be sure to have the executed documents available for refinance review)
  • Year-to-date or trailing 12 month profit and loss statement
  • A balance sheet matching the profit and loss statement
  • Verification that loan statements from the lender match the loan balances on your balance sheet
  • Personal financial statements for guarantors

This information along with a conversation between an SBA INDUSTRY EXPERT and the company’s decision makers will be helpful in computing how much cash can be saved by refinancing. Then, preliminary loan terms can be discussed and the positive impact on cash flow considered. One final note, make sure you keep making all loan payments as required until the SBA loan refinance is completed! If you know that some of the loans have been or are delinquent, share that information with those helping you at the beginning of the loan discussions.

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