How To Refinance SBA Loan? Step By Step Guide

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Are you looking for a way to refinance an SBA loan? If yes, then there is no need to be worried. You can refinance under the SBA\’s regulations. There are different SBA refinancing programs designed for everyone\’s needs. We will discuss the programs further in the article.

Small Business Association (SBA) loans small startups to provide financial support and help them shape their vision. These loans offer an incredible way to fund new projects. However, as your business grows, the actual terms and conditions of the loan apply to put a leash on your operating expenditures.

Fortunately, the SBA provides the option to refinance the loan. To refinance, you must fulfill the SBA requirements and work with a certified SBA lender to ensure your refinance procedure goes smoothly.

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What Refinancing Does?

Refinancing an SBA loan helps reduce your debt burden and make the interest rate more favorable. You must take a new loan from SBA with a lower interest value than your previous/current loan for refinancing. It is helpful because it can improve your monthly cost and interest.

However, depending on the current interest amount on the refinancing loan, you have to decide if it\’s the right option for you. If the current interest rate on the refinancing loan is lower than your present loan, then refinancing is a good option. Otherwise, you may have to look for other ways. Just don\’t forget that you are refinancing to get a better loan, not to get a loan that works on the same terms as your current one.

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Remember that the SBA does not directly lend you funds; it guarantees the loan provided by lenders. It involves working with an SBA-approved lender, not directly with the Small Business Association.

Potential Steps To Refinance SBA Loan

Here are the six main steps you need to follow to refinance an SBA loan.

  1. Check eligibility to ensure your present SBA loan qualifies for refinancing.
  2. Collect the required documents such as credit reports, profit or loss statements, etc.
  3. Select the right SBA program for refinancing, i.e., 7(a) or 504.
  4. Find and work with a SBA-approved lender.
  5. Complete the application and submit it with collected documents.
  6. Wait for the approval. It usually takes 30-90 days.

Why Would You Need Refinancing?

Suppose you are starting a small business and want funds for it. In the initial stages, you will only get a high-interest-rate loan for immediate funding. At first, this feels like an amazing offer, but quickly, the loan becomes more like a burden as your startup grows. You must make higher payments with a high interest rate and short repayment conditions.

To solve this issue, you can refinance your SBA loan. This will allow you to save monthly money to invest in your business for hassle-free growth rather than paying a high interest rate.

Types of SBA Loan Refinancing Programs

With SBA loan refinancing, you can do business with better terms and lower interest rates. The SBA offers two types of loan refinancing programs.

SBA 7(a):

SBA 7(a) allows you to take a loan of up to $5 million. Its term length is 25 years.

SBA 504:

This program allows you to take a loan of up to $20 million. It is usually available for large-scale projects. The term length for SBA 504 is also 25 years.

See Also: How To Pay Off Car Loan Faster

Requirements For Refinancing an SBA Loan

The following meet the following requirements for refinance SBA 7(a).

  • A minimum credit score of 690.
  • No record of bankruptcies in the past three years.
  • At least a down payment of 10%.
  • You need a franchise fee before the loan release if it\’s a franchise.
  • No shady criminal history.
  • No ongoing federal loan or debt.

The following requirements meet the refilling of the SBA 504 loan program.

  • It should be a for-profit startup (net worth ≤ $15 million, net income ≤ $5 million over two years).
  • Existing debt should be six months old and used for real estate or equipment businesses.
  • At least 85% of the original debt should qualify under SBA 504 guidelines.
  • An updated property appraisal, which acts as collateral, is needed.

Final Words

Refinance your SBA loan to lower your small business’s interest rate and expenditures. It improves your business\’s credit score and gives you access to more money to invest in your growing business. Fulfill all the requirements mentioned in the article, and you are ready.