What is the SBA 10 percent payment test on a refinance?
Short answer
The new installment must be at least 10% less than the existing installment amounts in aggregate (SOP 50 10 8.1, App. 14, Ten Percent Improvement). If you pay $10,000 a month today, the new payment on that debt must be $9,000 or less.
The test requires the new payment on refinanced debt to be at least 10% less than the existing installment amounts in aggregate. It sits in Appendix 14, Paragraph A of SOP 50 10 8.1, under the heading Ten Percent Improvement to Installment Payment Amount.
How it works
- One debt. If your payment is $4,000 a month, the new payment must be $3,600 or less.
- Several debts. Debts refinanced at the same time may be combined. If two payments total $10,000, the new payment must be $9,000 or less.
- Stepped payments. If the note has an escalating payment, compare against the amount expected within the next 12 months.
These figures are illustrations, not quotes for your loan.
What the rule leaves open
The paragraph does not say how to handle a single 7(a) note that also funds other uses. The 504 rule uses "the portion of the new installment amount attributable to the debt being refinanced" for this. Appendix 14 has no matching sentence. It also does not say whether fees and prepayment costs count. Ask your lender how it sizes the comparison.
Where it applies
It applies to 7(a) refinances unless the debt is on the exception list. Seller notes must meet it too (App. 15, Para. A.3.a). A longer term can help you pass, within the maturity limits in Appendix 17.
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