Article by Roger Schlueter, MBA
This article uses information from the SBA SOP which was revised in October of 2011.
This is a recap for all the Banks and Borrowers that do not realize that you can refinance bank loans, credit cards (used for Business), and even SBA Loans at your institution or at another bank with the SBA 7a Guarantee Program.
The original purpose of the loan being refinanced must have been eligible at it’s origination. The debt to be refinanced must be in the business name unless the debt is Credit Card debt in the personal name but used for the business.
Any debt can be refinanced if the lender believes it no longer meets the needs of the small business applicant. Applications under this subparagraph may only be processed though standard 7a procedures. The following types of business debt that are identified below may be refinanced with SBA Guaranteed Loans.
– Debt (short or long term) structured with a demand note or balloon payment.
– Debt with an interest rate that exceeds the SBA maximum interest rate for the processing method being
used.
– Credit Card obligations used for business-related purposes
– Debt that is over collateralized based on SBA’s Collateral Requirements
– Revolving lines of Credit where the original lender is unwilling to renew the line or the applicant is
restructuring it’s financing in order to obtain a lower interest rate or longer term
– Debt with a maturity that was not appropriate for the purpose of the financing ( 3 yr term for equipment that
will last 15 years.
– Debt used to finance a change of ownership of a business may be refinanced if it meets these criteria:
a) The lender obtains a current business evaluation that meets SBA requirements.
b) Intangible assets on the borrowers most resent financial statement exceeds $500,000 and and the
applicant does not have at least 25% equity – the application must be processed in Sacramento
Processing Center.
c) Lender may refinance Seller Take Back Financing but the loan must be in place for 24 months prior
to this application and must be current for the 24 months. must also meet Refi Requirements 1 and 2
below.
– 1) Other than Lines of Credit the savings to the borrower of the refinance must be 10% or more.
– 2) Loan Officer must address the following issues in a Written Analysis when refinancing debt.
1) Why was the debt incurred?
2) Has over-obligated or imprudent borrowing necessitated a major restructuring of the debt?
3) Is the debt being refinanced currently on reasonable terms?
4) Will the new loan improve the financial condition of the Small Business Applicant?
5) Does the refinancing include payments to creditors (Borrower) in a position to sustain a loss,
for Example, the applicant has an inadequate collateral position, low or deficit net worth, or the loan is
in default? 6) Would the lender / SBA be likely to sustain part or all of the same loss by refinancing the debt or
will additional collateral or altered terms protect the interest of the taxpayer?
7) What portion ofthe total loan does the refinancing constitute?
8) If credit card debt will be refinanced, the borrower must certify that the credit card debt being
refinanced was incurred exclusively for business purposes.
(a) If Credit Card is in name of Business the lender must confirm the Credit Card is in the name
of Business and have the business certify that the Credit Card Debt being refinanced was
incurred for the business. Borrower must subtract any Personal Use from the refinanced amount.
The SBA will not refinance personal expenses.
(b) If Credit Card is in the name of the individual the lender must document the debt was incurred
for the business and the borrower must certify that the loan proceeds were only used for business.
the borrower must also include copies of credit card statements and receipts for any expense
in excess of $100.
– Refinancing with same institution debt, the lender must include a Loan Payment Transcript showing due dates and when payment were received as part of its analysis and recommendation. Lender must also explain late payments and late charges within the last 36 months. SBA will not refinance same institution debt to shift loss to SBA from the bank.
– Lender can refinance a SBA Guaranteed Loan but it must contact the bank holding the loan and verify that the current lender would not extend additional credit to the borrower and /l or unable to modify the loan terms. The bank must also document the date, time and person the bank had talked, with a short summary of the conversation. Bank can refinance one
of it’s own SBA Guaranteed Loans only if the secondary market investor does not agree to modify the terms of the existing loan.
There can be other conditions for the other specialized loan programs of the SBA.
Please see my website for contact or other information at www.schlueterfinancial.com or email me at roger@rogerschlueter.com