Daily Observation - Debt Refinance

So can we get cash out of our properties to pay off debt? Seems like this is the most popular question we get every day. And of course I will have to answer to the client it depends? So rather than just leave you with that answer I will attempt to shed some light on the question.

Before we can answer it though we have to decide if we are going through an SBA program or are we talking about a straight commercial investment.

To get money back for a loan that is going to be approved by the SBA all debt will have to be 100% business related. In addition to be 100% business related it will all have to be documented, as well as traced from where it was borrowed from to what it was used to pay for.

For example if the money was used for salaries rather than equipment it may be much harder to get the money back through a refinance. The SBA lenders want to see that the money was actually used in the business for purchasing tenant improvements, equipment, inventory anything that can be turned back into future company profits. Working capital loans that are not being used for true expansion are getting much harder to get approved.

So before you ask for a debt refinance as part of working capital for a small business loan make sure you can properly document the need as well as the past expense. The other requirement for debt refinance for SBA loans is that the SBA can only take out a loan that is more expensive then the new SBA loan proposed. Not only must their be a substantial savings between the two loans, the terms of the SBA loan also must be better. Its getting harder and harder to establish the refinance of an existing loan with an new SBA loans.

In my opinion its better to refinance a non-SBA loan with cash or cash equivalent and then apply for an in increase or a new SBA loan that has nothing to do with a debt refinance but a request for expansion capital etc. The request will most likely be approved if its for a growing company with strong financials, this most likely will not work for a start up operation.

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Tomorrow night we examine debt refinance for a commercial investment.