SBA loan program can help refinance debt. Here’s how.

In a challenging credit environment with rising interest rates, small-business owners seeking debt refinancing solutions can turn to the Small Business Administration (SBA) 504 loan program. The SBA relaxed rules during the COVID-19 pandemic, allowing for the refinancing of SBA and non-SBA loans into new SBA loans, presenting significant savings opportunities.

Kurt Chambliss, executive vice president of TMC Financing, highlights the benefits of the SBA 504 loan program, with interest rates around 6.3% compared to SBA 7(a) loans at 9.5% to 11.5%. Notably, the program permits the refinancing of SBA 7(a) loans, a previously unavailable option.

Business owners must meet eligibility criteria, including a requirement that 75% of the original loan was used to acquire assets like land or buildings. Additionally, businesses must have operated for at least two years, be six months from their last loan disbursement, and achieve a minimum 10% payment reduction through refinancing.

Chambliss emphasizes that even recent SBA 7(a) loan recipients with higher interest rates can benefit from the program, despite prepayment penalties, as payment reductions often offset these costs.

The SBA 504 program offers lower rates because funds are sourced from SBA-bundled loans, sold as bonds to investors, and guaranteed by the federal government, resulting in attractive rates for small-business owners.

Businesses can avoid balloon payments, access cash, and potentially purchase their occupied property through this program. However, Chambliss notes that the 504 program is often overlooked by unaware business owners, emphasizing the importance of spreading awareness about its benefits.

The article also provides advice for small-business owners to reduce debt in 2024. Strategies include gradually paying off debt, exploring alternative financing options, embracing creativity in cost reduction, and working with creditors to find feasible payment plans.

Furthermore, the article mentions the State Small Business Credit initiative, which has provided billions of dollars to small-business owners through direct investments and subsidized loans during the pandemic, and encourages businesses to explore state and local programs for additional funding opportunities, tax credits, and small-business grants in 2024.