Refinancing My Seller Note

January 27, 2024

by a searcher from Southern Methodist University - Edwin L. Cox School of Business in Denver, CO, USA

Hi everyone!

I closed a self-funded acquisition in 2023 with a 20% capital injection and 80% seller financing. Deal was $5.3m. $1m down. $4.3m seller note. The loan term was 3.5 years, which was intentionally designed to be refinanced before then. Current rate is 9% fixed. Amortized over 10 years.

I would love to refinance out of this deal if/when interest rates start coming down. My understanding is that if I were to refinance through an SBA loan, I would need to demonstrate 2 years of making on-time payments to service my current loan.

Are there any other refinance options? Are there any options to refinance before 2 years? I am very familiar with SBA loans, but not other options.

Thank you!

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

In theory you have available to you conventional bank financing and some non-bank financing options as well. However, there will be a couple of potential challenges with that. First, your more traditional lenders will typically want to be fully secured by business assets or close to fully secured. If there are not sufficient business assets to fully secure the deal they will push you to the SBA 7A route, which you have already identified you do not qualify for until you have made two years of timely payments. The non-bank lenders you could run into the same collateral issue. You might also be looking at a higher interest rate. Lastly, they might want to see more equity in the deal.

To be honest if you are at 9% fixed, I think I would recommend waiting the two years. I am not sure you will save enough rate and term wise to move sooner. Also, likely the SBA 7A option would be your easiest path to refinance anyway. I hope this helps. If you have additional questions you can reach out to me at any time. Good luck.

Reply by an investor
from University of Missouri in Austin, TX, USA

Your loan terms seem very favorable, especially in today's environment. Is there a particular reason you are wanting to refinance to a higher rate (if SBA) and also add a PG? To me, that would seem like you are moving backwards. From my limited understanding, I would stay put.

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