Resources >   Business Finance  >  Business credit  >  

When Can You Refinance Debt With An SBA 7(A) Loan?

Business credit

When Can You Refinance Debt With An SBA 7(A) Loan?

Updated: August 31st, 2023

qualifying for an SBA loan - feature image

The small business community fuels the US economy, and financing has played a major part. By accessing business loans, entrepreneurs have realized their dreams of opening a second location or updating aging equipment and machinery. The use cases for the funds pretty much run the gamut. 

If you dream of investing more into your business so that you can realize your goals but debt has held you back, you know how crippling bad credit terms can be. Whether you’ve got payments you can’t afford or just can’t comply with the requirements, refinancing could be the solution. 

Fortunately, there are circumstances in which business owners could direct the proceeds from a Small Business Administration 7(a) loan to refinance existing debt. Doing so can ensure that payments are lower or the maturity is longer. If this sounds like a game-changer, you’ll want to keep reading to learn whether you are in a position to seize the opportunity that an SBA loan refinance can offer. 

SBA 7(a) at a glance 

The SBA’s 7(a) program supports loans of up to $5 million that are facilitated through partner banks, alternative lenders, and credit unions to US small businesses. Business owners prefer these loans for their below-market interest rates and 10-year maturities. The proceeds can be directed toward a wide variety of use cases, including – 

  • Working capital
  • To expand or give your business a makeover 
  • Real estate including new construction or buying land or buildings 
  • Buying equipment/fixtures/inventory 
  • Refinancing debt 
  • Seasonal credit 
  • Launching a new business 

SBA loan refinance criteria 

The SBA offers attractive financing opportunities to business owners. Its 7(a) program is the hottest one going. But they also have a rather narrow set of criteria that you must meet to access the capital. Not to mention, the hurdles you must clear to qualify. Nevertheless, if you make the cut to refinance business debt, it could free up more cash flow for your business for the foreseeable future. 

In its review of its loan guaranty programs, the SBA states that the proceeds from 7(a) loans can be used to refinance business debt “for compelling reasons.” But what does that mean exactly? Whether or not you’ll be able to use an SBA loan to refinance with the agency is an incredibly nuanced framework. So, we’ll go through specific scenarios to make it understandable. 

You can refinance business debt with the same lender that issued the original financing if you can prove you’ve got no unexplainable lapses in payment over the past 36 months. If you’ve already got an SBA loan, the agency frowns on getting another one to refinance, though there are some exceptions. For instance, if your financing requires greater flexibility than is currently allowed and the existing lender won’t bend. 

Business debt refinancing if the original loan wasn’t from the SBA

One possible scenario is if another lender and not the SBA issued your current loan. Your chances of using an SBA loan to refinance increase if your current loan terms are more burdensome than those you could have received with a 7(a) loan. In this scenario, you could qualify if you fall into any one of the following buckets: 

  • The proceeds of your existing loan are being directed to meet the SBA’s 7(a) guidelines. 
  • The amount of an SBA loan payment amount would fall at least 10% below the current loan payment threshold. 
  • Submit evidence that the terms of your existing business loan are unattainable for you. For example
    • The existing business debt to be refinanced isn’t structured as a loan at all but instead is drawn on via a line of credit or credit card
    • The value of your collateral used to secure the financing exceeds the amount of the loan. 
    • The interest rate attached to the current loan surpasses that of the capped rate allowed by the SBA.
    • A demand or balloon payment in the initial loan or the current maturity is no longer relevant for the original purpose of the financing.  
    • The lender behind the original line of credit won’t renew. 
    • The original debt was directed toward a change of ownership in which the financing has performed for two years. 

How to refinance business debt if the original loan is from the SBA 

Another scenario for using an SBA loan to refinance debt is when the SBA issued the loan you already have. In this situation, you could qualify if:

  • You need access to more capital, but other lenders have said no. 
  • You’ve taken out a loan from another lender, but they won’t change the SBA loan terms to align with the new one. 
  • In either case, speak with a loan officer first to see if your situation fits the bill. 

Reasons to refinance business debt

Now that you know what it takes to get the green light from the SBA for business debt refinancing, you may be wondering the circumstances in which it makes sense to jump through these hoops. One reason is you could find additional relief during the COVID-19 pandemic. That’s because the SBA has vowed to pay six months of principal, interest, and fees for borrowers under 7(a) on loans issued before Sept. 27, 2020. It’s not anything you need to apply for and instead happens automatically. 

Consolidate debt by using with an SBA loan refinance

Cash flow can be hard enough to manage on a day to day basis. If you find yourself juggling multiple loans — all with their own unique terms and features — it can exacerbate an already tenuous situation. Using an SBA loan to refinance debt could be especially attractive if you regularly need to invest in new equipment or technology for your business. By consolidating into one loan, you’ve got fewer payments to juggle. By refinancing to a lower rate, you’ll have more cash flow at the end of the day. 

Max out the maturity

When cash flow is tight, every penny counts. One way to free up more cash is to refinance business debt at a lower rate over a longer repayment period to lower your monthly expenses. The SBA’s 7(a) loan has a maturity of up to 10 years in most cases and up to 25 years for real estate. 

Upgrade to an SBA loan to refinance your debt and enjoy better terms and features

Replace the stringent terms attached to a line of credit with a loan that has more attractive features. It may be easy to tap a line of credit for immediate needs, but when it comes time to pay the piper, you’ll need to come up with the cash sooner than later. Getting an SBA loan for business debt refinancing gives you more breathing room for how the funds are used and repaid. 

Interest rates are currently hovering near historic lows. These low rates mean that there could be no better time to refinance your debt with an SBA 7(a) loan. And to make it even easier, you can apply for an SBA loan directly through Funding Circle! Just follow this link to go to the application page.


Affordable business financing. Crazy fast.

Funds delivered in days, not months.

dots image

Sign up for Funding Circle newsletter!

Get our latest news and information on business finance, management and growth.

Great Review: