Refinancing existing debt with an SBA loan can dramatically improve your business’s cash flow — lower payments, longer terms, better rates. But the SBA’s refinancing rules are some of the most complex in the entire lending program, and getting them wrong means your deal gets declined.
The 2025 SOP (effective June 1, 2025) has specific requirements for every type of refinancing scenario. Here’s what GoSBA Loans wants you to know before you apply.
The Cardinal Rule: You Can’t Bail Out a Lender
Before anything else, understand this: SBA loan proceeds may never be used to pay a creditor in a position to sustain a loss. This means the SBA will not allow its guarantee to be used to shift risk from a bank that made a bad loan to the federal government.
The debt being refinanced must be — and must have been — current for at least the last 12 months (or the life of the loan, whichever is less). “Current” means no payment has remained unpaid for more than 29 days. If the loan has matured and hasn’t been paid within 29 days of the maturity date, it’s not current and not eligible for refinancing.
The 10% Payment Improvement Rule
This is the rule that makes or breaks most refinancing deals:
When refinancing debt, the new installment payment amount must be at least 10% less than the existing installment amount(s).
If you’re refinancing multiple debts simultaneously, you can combine them in the improvement calculation. And if the existing note has an escalating payment structure, the new installment must be at least 10% less than the expected installment amount within the next 12 months.
Exceptions to the 10% Rule
The following types of debt are exempt from the 10% improvement requirement:
- Demand notes or balloon payments (short-term or long-term)
- Credit card obligations used for business purposes
- HELOCs used for business purposes
- Revolving lines of credit (short-term or long-term) where the original lender is unable or unwilling to renew the line, or the applicant is restructuring to get a lower rate or longer term
These exceptions are significant. If your existing debt is structured as a balloon payment or demand note, you don’t need to show a 10% payment reduction — the SBA recognizes that restructuring this type of debt into a fully amortizing SBA loan is inherently beneficial.
What Debt Can Be Refinanced?
The SBA allows refinancing of many types of business debt, but each has specific requirements:
Non-SBA Debt from Another Lender
This is the simplest scenario. You can refinance conventional business debt from another lender as long as:
- The lender determines the existing debt no longer meets the applicant’s needs
- The 10% payment improvement test is met (unless an exception applies)
- The debt is and has been current for 12 months
Credit Card Debt
Business credit card debt can be refinanced, but the applicant must certify that the debt was used exclusively for business purposes and not for any ineligible purpose. The lender should obtain the most recent credit card statement showing the account holder and current balance.
HELOC (Home Equity Line of Credit)
A HELOC can be refinanced if the applicant certifies the amount being refinanced was used exclusively for business. The personal vs. business use must be clearly documented.
Debt on the Business Balance Sheet
Short-term revolving debt reflected on the business balance sheet may be eligible for refinancing if:
- It’s reflected on the business tax returns (Schedule C for sole proprietors) showing the interest expense
- If the debt hasn’t been in place long enough for a tax return, it must be on interim financial statements and the debt schedule
- The applicant certifies proceeds were used exclusively for business and not for any ineligible purpose
Existing SBA Loans from Other Lenders
You can refinance an SBA-guaranteed loan from another lender if the conditions are met. Any applicable subsidy recoupment fees will apply.
504 Loans
Refinancing an existing 504 loan is possible under specific conditions — either both the Third Party Loan and the 504 loan are being refinanced, or the Third Party Loan has been paid in full and the 504 loan needs refinancing as part of a larger expansion/renovation transaction. Prepayment penalties will apply.
What CANNOT Be Refinanced
The SBA draws hard lines on certain types of debt:
Merchant Cash Advances — Absolutely Not
Merchant cash advances and factoring agreements are NOT eligible for refinancing. Full stop. The 2025 SOP makes this crystal clear. If your business has been relying on MCAs, you’ll need to pay those off separately before or outside of your SBA transaction.
SBIC and NMVCC Debt
Debt owed to a Small Business Investment Company (SBIC) or New Markets Venture Capital Company cannot be refinanced with an SBA loan. This is a statutory prohibition under 13 CFR § 120.130(b).
Debt Already on Reasonable Terms
If the existing debt is already on reasonable terms and the borrower can’t demonstrate a genuine need for restructuring, the refinancing isn’t eligible.
Non-Revolving Debt with Revolving Lines
For Working Capital CAPLines specifically, you cannot refinance term debt with a revolving line. And revolving debt that isn’t actually revolving per its note terms is also ineligible.
Same Institution Debt: The Strictest Rules
Refinancing a lender’s own debt with an SBA-guaranteed loan is heavily restricted because of the obvious conflict of interest — the lender would be shifting its own risk to the SBA.
Key Restrictions on Same Institution Debt (SID)
- Cannot be processed under delegated (PLP) authority — must go through non-delegated procedures with direct SBA review
- The lender must include a transcript showing due dates and payment history for the prior 36 months (or life of the loan)
- Must explain in writing any late payments or late charges during the last 36 months
- There must be no appearance that the lender is shifting a potential loss to SBA
Refinancing Your Own SBA Loan
A lender can only refinance its own SBA 7(a) loan through non-delegated authority AND only if:
- It cannot modify the existing loan because a secondary market investor won’t agree to modified terms, OR
- An increase in the amount of the existing SBA loan is not possible
SBA Express loans may not be used to refinance same institution debt at all.
Required Documentation for Refinancing
The written analysis included with every refinancing application must address:
- The reason the debt was originally incurred
- Why the proposed refinancing will not pay a creditor in a position to sustain a loss
- The reason for restructuring (over-obligated, imprudent borrowing, etc.)
- Why the existing debt is not on reasonable terms
- How the new loan will improve the financial condition of the applicant
Supporting documentation required for each debt:
- Copies of notes being refinanced
- Security agreements and leases
- Most recent credit card statements (when applicable)
- For non-delegated processing: all documentation submitted to LGPC with the application
Change of Ownership and Refinancing
Refinancing debt in connection with a business acquisition has additional nuances:
- Debt owed to third parties (not the seller) within 12 months of a change of ownership may be refinanced under a lender’s PLP authority unless it’s same institution debt
- Seller-financed notes must have been in place and current (not on standby) for at least 24 months following the change of ownership to be eligible for refinancing
- Paying off debt as part of a change of ownership is not considered refinancing — it’s a use of proceeds
Important Distinctions
Trade Payables Are NOT Refinancing
The payment of trade payables (accounts payable) is not considered debt refinancing. This is an important distinction — if you’re using SBA loan proceeds to pay vendors, that’s a working capital use, not a refinance.
Interim Advances (Bridge Loans)
After a loan receives an SBA number but before disbursement, a lender may make interim advances that can be reimbursed with SBA loan proceeds. Lender notification to SBA is not required for these bridge loans.
The Refinancing Strategy That Wins
Here’s how to maximize your chances of a successful SBA refinance:
- Get current and stay current. You need 12 clean months minimum. Start now if you’re not there yet.
- Calculate the 10% improvement before you apply. Run the numbers on your existing payments vs. the projected SBA payment. If you’re close to the 10% line, look at combining additional debts to improve the calculation.
- Pay off MCAs separately. Since they can’t be refinanced with SBA proceeds, clear them with other funds first.
- Avoid same institution if possible. Refinancing with a different lender through their delegated authority is faster and simpler than same institution debt through non-delegated processing.
- Document the business justification. “Lower payments” is necessary but not sufficient. The lender needs to articulate why the existing terms don’t meet your business needs.
GoSBA Loans: Your Refinancing Expert
SBA refinancing is where expertise pays for itself. The difference between a well-structured refinance package and a poorly prepared one is often the difference between approval and decline. The 10% rule, the same institution restrictions, the documentation requirements — there are a dozen ways to get it wrong.
GoSBA Loans has refinanced millions in business debt through the SBA program. We know which debts qualify, how to structure the payment improvement calculation, and which lenders are most aggressive on refinancing deals.
Contact GoSBA Loans today and find out how much you could save by refinancing with an SBA loan.
