Insights
2025-11-17
Refinancing Debt with an SBA 7(a) Loan
Introduction
In many mid-sized firms, legacy debt may carry high rates or restrictive terms. Using an SBA 7(a) loan to refinance can reduce interest, extend maturities, and free up cash flow. This piece explains when refinancing makes sense, how to structure it, and what challenges to expect.
1. When to Refinance with SBA 7(a)
- High-interest debt (mezzanine, vendor debt)
- Debt nearing maturity or balloon payments
- Need for working capital flexibility
2. Eligibility & Limitations
- Must improve debt service coverage
- Cannot refinance equity or owner distributions
- Some debts (e.g. some subordinated liens) may not qualify
3. Structuring the Refinance
- Consolidate multiple existing loans into one package
- Allocate a portion for working capital, as allowed
- Maintain or improve cash flow cushion
4. Documentation & Underwriting Focus
- Three years of debt schedules and interest history
- Cash flow trends and projections
- Collateral valuations and guarantees
5. Benefits & Trade-offs
- Lower monthly interest payments
- Extended amortization
- Closing costs and SBA guarantee fees must be considered
Key Takeaway
Refinancing business debt via SBA 7(a) can unlock cash flow and stabilize capital structure, if executed thoughtfully.
FAQs
Can all existing debt be refinanced with an SBA loan?
No, some types don’t qualify under SBA guidelines.
Will refinancing reset my maturity?
Yes, you may get a new longer repayment term.
How do closing costs compare to benefits?
You must model breakeven of fees vs. interest savings.
Does a refinance improve credit metrics?
Potentially, if it reduces interest burden and extends term.
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