Can an SBA loan have an interest-only period?
Short answer
Yes, if your Note states it. SOP 50 10 8.1, Section B, Chapter 6, Para. D.2 lists any interest-only payment period among the Note terms. SBA sets no general length, and the loan still cannot end in a balloon.
SOP 50 10 8.1, Section B, Chapter 6, Para. D.2 (p. 207) says Note terms must include all interest rate requirements, including, if applicable, any interest-only payment period. The SOP does not set a general length for one. Availability and length vary by lender.
The limit that still applies
SBA does not allow balloon payments (13 CFR § 120.214(e)). Any interest-only period must leave room for the loan to amortize fully by maturity. The term maximums in Appendix 17 still apply.
Program rules
- CAPLines. Interest-only payments for any period exceeding your cash cycle, seasonal cycle, contract final payment date or project completion date are not permitted (Para. D.2).
- Working Capital CAPLines. For a line run on a Borrowing Base Certificate, the SOP says there is no provision for interest-only payments. Interest must be paid at least monthly, and principal payments should follow your cash cycle (Section B, Chapter 4, Para. F, about p. 160).
- Export Working Capital Program (EWCP). One repayment option is interest-only payments on outstanding balances (Section B, Chapter 5, Para. B.8).
Acquisitions
A change of ownership may include added debt that is not on full standby and pays interest only. In its repayment analysis, the lender must then apply an amortizationPaying a loan down on a schedule, so each payment covers interest and part of the balance. Full definition of no more than 10 years. Lines of creditA credit limit you can draw on, repay and draw on again. are excepted (Appendix 15, Para. C.2.b, about p. 380).
Ask your lender how the payment changes when the period ends.
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