Refinancing of SBA loan after 1.5 years or so

January 24, 2021

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Austin, TX, USA

Can you use an SBA loan to fund a deal and then refinance with normal facility after 1.5 years or so in order to get rid of personal guarantee risk? Anyone have any experience with doing this?

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Reply by a professional
in Fort Worth, TX, USA

You can, but some SBA have prepayment penalties (7a with RE and Am over 10 years). SBA usually has good rates, depending on the bank, and great amortization. If the purpose is to remove PG, most banks will not look at it at 1.5 years of ownership. In the SME space a PG is a must for most banks.

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

We do quite a bit of both SBA and traditional bank financing. Most Banks in their small business lending groups almost always require personal guarantees. Depending on the Bank size, the small business lending teams typically work with Borrowers with $1 to $50 million in revenue and loan sizes of $100,000 to $10 million. The bigger issue you are going to have in refinancing is do you have the collateral to support a conventional bank deal. If you are doing a leveraged business buyout where most of the value is goodwill and the loan is not fully secured by other collateral, it is going to be hard to get a conventional lender to refinance it unless you come up with more collateral. If the deal is mostly collateralized today and you can get the debt paid down to a point where it is fully collateralized in the future between business assets and real estate, then it would be possible to refinance into a conventional bank deal. But you would still likely have the personal guarantee at that point. If you would like to discuss your specific situation, feel free to reach out to me at redacted Thanks.

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