SBA SOP 50 10 8.1, App14.A — General Requirements

A. General Requirements 13 CFR §§ 120.140(j)(1) and 120.201 SBA-guaranteed loan proceeds may not be used to pay a creditor in a position to sustain a loss (including the same institution’s debt). This includes any refinancing that will shift all or part of a potential loss from the original lender to the SBA. The debt to be refinanced must be, and must have been, current for at least the last 12 months or for the life of the loan, whichever is less. “Current” means that a required payment has not remained unpaid for more than 29 days. A loan that has matured and not been paid within 29 days of the maturity date is not current and is not eligible for refinancing. 1. Loan proceeds may be used to refinance the following types of business debt. a. Any debt structured with a demand note or balloon payment; b. Debt with an interest rate that exceeds the SBA maximum interest rate based on size or term; c. Credit Card Debt Used for Business Expenses - The Applicant must certify that the proceeds from the debt were used exclusively for the Applicant’s business and were not used for any ineligible purpose as set forth in 13 CFR § 120.130. If a Lender submits a loan with proceeds refinanced from credit card debt where the Applicant certified that the proceeds from the debt were used exclusively for the Applicant’s business, but the Applicant certification is determined to be invalid, SBA will not use this as a basis to deny or repair the guaranty purchase request. The Lender can rely on the Applicant certification; d. Debt that is over-collateralized based on 7(a) collateral requirements–- see Appendix 19: 7(a) Collateral Requirements, which describes SBA’s collateral requirements used to determine if a loan is “fully secured;” e. Revolving lines of credit (short-term or long-term) where the original lender is unwilling to renew the line, or the Applicant is restructuring its financing in order to obtain a lower interest rate or longer term; f. Debt with a maturity that was not appropriate for the purpose of the financing (e.g., a 3 year term loan to finance a piece of equipment with a useful life of 15 years); g. Debt used to finance a change of ownership of a going concern business;

i. See Appendix 15: 7(a) Changes of Ownership for debt refinancing rules related to changes of ownership.

iv. How the new loan will improve the financial condition of the Applicant;

v. An itemization of all debts being repaid by loan proceeds when the individual creditor is to be paid $10,000 or more, and/or the loan number and dollar amount of any existing SBA being debt refinanced

vi. The reason(s) the Lender believes the debt to be refinanced no longer meets the needs of the Applicant b. Supporting documentation for each debt to be refinanced: Lenders are required to: i. Retain copies of the note(s) being refinanced, security agreements, leases, and other documentation evidencing the debt to be refinanced. If submitting to LGPC for non-delegated processing, Lenders must include this documentation with the application. ii. Include, when applicable, a copy of the most recent credit card statement evidencing the holder of the account and the current balance. 9. The SBA Terms and Conditions must include: a. In the Use of Proceeds section, the refinancing must be specifically identified; b. An itemization of all debts being repaid by loan proceeds when the individual creditor is to be paid $10,000 or more; and/or c. The loan number and dollar amount of any existing SBA being debt refinanced. 10. Other conditions that apply to debt refinancing: a. SBA guaranteed loan proceeds may not be used to refinance debt originally incurred for an ineligible SBA purpose at the time it was originally made unless the condition causing the ineligibility no longer exists. b. A 7(a) loan may not be used to refinance a debt owed to a Small Business Investment Company (SBIC) or a New Markets Venture Capital Company 13 CFR § 120.130(b). c. The payment of trade payables is not considered to be debt refinancing. 11. Interim Advances: For loans processed on a delegated or non-delegated basis, after the loan has received an SBA loan number and prior to disbursement, a Lender or an affiliate of the Lender may make interim advances (also known as bridge loans) and 7(a) loan proceeds may be used to reimburse the interim advances. Lender notification to SBA of such advances is not required.