Can an SBA loan refinance existing business debt?

Yes. A 7(a) loan can refinance certain business debt under 13 CFR 120.120(c) and Appendix 14 of SOP 50 10 8.1.

Debts that can qualify

Appendix 14, Paragraph A.1 lists these types:

• Demand notes and balloon debt
• Debt above SBA's maximum rate
• Business credit card debt and home equity lines used for business
• Over-collateralized debt
• Revolving lines the lender will not renew, or that you restructure for a better rate or term
• Debt with a maturity that did not fit its purpose
• Debt used to buy a going concern
• Debt on the business balance sheet and tax returns, showing its interest expense
• Other lenders' non-SBA debt that meets the payment test

The tests a refinance must meet

1. Current payments. The debt must be current for at least the last 12 months or the life of the loan, whichever is less.
2. No shifted loss. SBA-guaranteed loans may not pay a creditor in a position to sustain a loss (13 CFR 120.201).
3. Better payment. The new payment must be at least 10% less than the existing installment amounts in aggregate, with listed exceptions.
4. Eligible origin. Debt first incurred for an ineligible purpose does not qualify unless that condition no longer exists.

What does not qualify

Factoring agreements and active merchant cash advances cannot be refinanced. Neither can debt owed to a Small Business Investment Company or New Markets Venture Capital Company (13 CFR 120.130(b)).

Any payoff has to be listed as refinancing, because working capitalworking capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition proceeds cannot repay existing debt (Sec. A, Ch. 3, Para. A.2.d.iii). A 504 loan has separate rules under 13 CFR 120.882. SBA's microloan page says microloans cannot pay existing debts.