With all the COVID-19 and PPP issues we’ve addressed this year, it’s been a while since I’ve answered everyday 7(a) questions. Now, we’re getting more of these calls. Recently there’s been a slew of Debt Refinance questions which isn’t surprising, all things considered.

It’s great to flex my 7(a) muscles again. Let’s talk SBA Debt Refi:

Check out SOP 50 10 6. Chapter 6, Section B, 7(a) Loans – Specific Requirements. Important: there are several key places where “AND” should be inserted to avoid making an advertent error in the eligibility of the debt to be refinanced. What do I mean? Take a look at these points:

To be eligible for refinance with an SBA 7(a) loan the debt must:

  • have an original use of proceeds that would have been eligible AND;
  • not already be on reasonable terms AND;
  • be secured with at least the same collateral and lien position. (there are some exceptions here. See pg. 228 of the SOP) AND;
  • meet one of the types of business debt referenced in the SOP (pgs. 228-229) AND;
  • for installment loans the new payment amount must be at least 10% less than the existing payment (aggregate) AND;
  • your Credit Memo must include analysis of the issues listed on pg. 230 (f.1.a-f) AND;
  • the Authorization must state that the proceeds are for refinance, not working capital we know will refinance. AND the debt is itemized by the creditor when it is $10,000.00 or more AND if the debt is an SBA loan, include the Loan# and amount.

When you read through Section B, it’s easy to miss the implied “ANDs” because there are lots of requirements in this section and your eyes can glaze over quickly. Now, this isn’t all there is to know about debt refinance. We haven’t touched on refinance of Same Institution Debt or refinancing existing SBA loans. If you read through these sections and insert the needed “ANDs” it’ll be easier to flex those 7(a) muscles!

Thanks for pulling together to get things done during these challenging times. Stay. Safe.

Rebecca Mendoza
Senior Associate