SBA Loan Fine Print regarding refinancing

July 02, 2025

by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in Long Beach, NY, USA

Instead of using an SBA loan to acquire the business we are looking at, we are potentially looking at utilizing alternative (more expensive) debt to close and then re-financing that debt with an SBA loan in 6 months. This allows us to avoid the SBA requirements of either forcing the seller to leave within 12 months if we acquire 100%, or avoiding minority partners and the seller have to personally guarantee the loan if we do a partial buyout. The seller wants to stay on and the business is more valuable with him doing so. Just as a sanity check - paragraph a) here from the SBA's SOP means that you can still refinance within 24 months, you just can't refinance the seller note within 24 months? Any lenders here have experience with this?

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

Using bridge financing is an interesting thought when it comes to avoiding the personal guarantee requirement for minority investors on a partial business acquisition. There are two potential issues with this scenario. First, most SBA lenders are going to be hesitant to refinance a business acquisition that was just recently funded. Although technically it would be allowed by the SBA rules, usually lenders are going to want to see a year or two of operations under existing ownership before they do such a refinance. We have had other situations where clients have had to close via a bridge loan temporarily and we were already working on the SBA financing, and the Bank shortly thereafter refinanced the debt, but they still did it under the standard SBA acquisition terms. The Bank cannot be party to avoiding SBA requirements if they know in advance. Secondly, lenders are going to ask why you financed it with a bridge loan and are looking to refinance the debt so quickly when you go to refinance. If the reason was to keep the seller active or to avoid the minority investors signing personal guarantees, then they are likely not going to move forward. Even if you state the reason was to close quickly, I suspect most lenders would want the deal terms to look like a normal partial business acquisition if refinancing it in the first six months to a year. If the SBA believes a lender was involved purposely or even indirectly because they did not ask the right questions in allowing a buyer to bypass the SBA rules, then they could see their guarantee invalidated. I can speak from experience, SBA lenders are not going to put themselves in a position where they could put their guarantee at risk. I am not saying with 100% certainty that you would not find a lender willing to do a refinance sooner, but based on our extensive experience not only placing debt but also doing consulting work for banks for 15 years, it is very unlikely you will find lenders looking at it as a normal refinance until you have owned and operated the business for at least a year. I hope this helps. I would be happy to discuss in more detail at any time here or directly at redacted

Reply by a searcher
from Indiana University (System) in Carmel, IN, USA

If you think the seller provides more value staying on than replacing them with someone else in 12 months, then maybe their additional value over time is greater than the increased debt load you take on with the alternative financing. Then you can always refinance later once you’ve stabilized to reduce the debt load.

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