SBA rules · SOP 50 10 8.1
Can an SBA 504 loan refinance existing debt?
Yes, an SBA 504 loan can be used to refinance existing debt under two distinct options: Debt Refinancing Without Expansion and Debt Refinancing With Expansion.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- Debt Refinancing Without Expansion: SBA allows refinancing of "Qualified Debt" where substantially all (75% or more) of the proceeds were used to acquire Eligible Fixed Assets, the debt was fully disbursed not less than 6 months prior to application, and the debt has been secured by those fixed assets for at least 6 months. The project may also include Eligible Business Expenses, subject to an overall maximum 90% loan-to-value cap.
- Debt Refinancing With Expansion: When a project involves an expansion (acquiring, constructing, or improving land, buildings, or equipment), existing debt may be refinanced in an amount up to 100% of the cost of the expansion. Substantially all (75% or more) of the debt must have been used for 504-eligible fixed assets, must be collateralized by fixed assets, must have been current for at least 1 year, and the new financing must provide a substantial benefit to the borrower.
- Refinancing existing SBA or federal loans: An existing 504 loan may be refinanced under either program if both the Third Party Loan and 504 loan are refinanced or the Third Party Loan is paid in full; existing 7(a) loans may be refinanced in whole or in part under Refinancing with Expansion.
- Prohibited debt: Under both programs, loan proceeds cannot be used to refinance debt owed to an Associate, debt owed to an SBIC or NMVCC, or debt owed to any creditor in a position to sustain a loss causing a shift of a potential loss to SBA.
The source
What the SOP says
“SBA may approve a Refinancing Project of a Qualified Debt that does not involve an expansion as follows.
“Substantially all (75% or more) of the proceeds of the existing debt was used to acquire an Eligible Fixed Asset(s) and the remaining amount (25% or less) was incurred for the benefit of the small business seeking refinancing;
“Was fully disbursed not less than 6 months prior to the date of application.
“Has been secured by Eligible Fixed Asset(s) for at least 6 months.
“For any projects that include the financing of Eligible Business Expenses, a maximum 90% loan to value of the Refinancing Project will apply.
“504 Projects may include a limited amount of debt refinancing with expansion, as follows.
“If the Project involves expansion of an Applicant, any amount of existing indebtedness that does not exceed 100% of the cost of the expansion may be refinanced.
“Substantially all (75% or more) of the proceeds of the existing debt was used to acquire a fixed asset(s) that was eligible for financing under the 504 loan program and the remaining amount (25% or less) was incurred for the benefit of the small business seeking refinancing;
“The Borrower has been current on all payments due on the existing debt for not less than 1 year preceding the date of refinancing.
“A 504 Project cannot be approved to refinance debt owed: To an Associate, which is prohibited by 13 CFR § 120.130(a); To an SBIC or a New Markets Venture Capital Company (NMVCC), which is prohibited by 13 CFR § 120.130(b); or To any creditor in a position to sustain a loss causing a shift to SBA of all or a part of a potential loss from an existing debt. 13 CFR § 120.884(b).
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.