SBA SOP 50 10 8, C.Ch1.C.10 — Permissible Debt Refinance without Expansion
Verbatim text of SBA SOP 50 10 8 section C.Ch1.C.10 (Permissible Debt Refinance without Expansion), effective 2025-06-01. 11 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, C.Ch1.C.10 — Permissible Debt Refinance without Expansion — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 C.Ch1.C.10
10. Permissible Debt Refinance without Expansion 13 CFR § 120.882(g) SBA may approve a Refinancing Project of a Qualified Debt that does not involve an expansion as follows. Definitions i. “Qualified Debt” means a commercial loan that: a) Either:
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i) Substantially all (75% or more) of the proceeds of the existing debt was used to acquire an Eligible Fixed Asset(s) and the remaining amount (25% or less) was incurred for the benefit of the small business seeking refinancing; or ii) If the Eligible Fixed Asset(s) was originally financed through a commercial loan (hereafter the “original loan”) that was subsequently refinanced one or more times: (a) Substantially all (75% or more) of the proceeds of the original loan was used to acquire an Eligible Fixed Asset(s) and the remaining amount (25% or less) was incurred for the benefit of the small business seeking the refinancing; and (b) The existing debt is the most recent refinancing of the original loan. b) Was incurred not less than 6 months prior to the date of application. c) Was incurred for the benefit of the small business that is seeking the refinancing. d) Has been secured by Eligible Fixed Asset(s) for at least 6 months. e) May include debt subject to a federal guarantee under these conditions: i) An existing 504 loan if both the Third Party Loan and the 504 loan are being refinanced or the Third Party Loan has been paid in full, and ii) The CDC has notified the existing CDC or 7(a) Lender in writing by letter or email no less than 10 business days to advise them the existing loan is being refinanced. iii) The refinancing of a Federally-guaranteed loan provided a substantial benefit to the borrower after Eligible Business Expenses, prepayment penalties, financing fees, and other financing costs are accounted for. “Substantial benefit” will mean that the portion of the new installment amount attributable to the debt being refinanced must be less than the existing installment amount(s). In calculating the percentage reduction in the new installment payment, prepayment penalties, financing fees, and other financing costs, must be added to the amount being refinanced, but not Eligible Business Expenses. The CDC may request the D/FA or designee to approve an exception to the reduction requirement for good cause. PCLP CDCs may not use their delegated authority to approve a loan requiring this exception. iv) If the loan being refinanced is guaranteed by a Federal agency other than SBA, the CDC must document in writing that the refinancing of the Federally-guaranteed loan is permissible under the other Federal agency’s requirements or is otherwise approved by the other Federal agency. f) If the CDC can demonstrate that the commercial real estate provides adequate collateral protection for the SBA, any liens on machinery and equipment purchased with proceeds of the original loan can be waived. A TPL or lender may require additional collateral not required by SBA for the 504 project property. g) Is not a Third Party Loan which is part of an existing 504 Project, except as provided in Paragraph 10.a.i.e)i) above; and h) May consist of a combination of two or more loans, provided that each of the loans satisfies the Qualified Debt requirements. ii. “Eligible Fixed Assets” are one or more long-term fixed assets, such as land, buildings, machinery, and equipment, acquired, constructed, or improved by a small business for use in its business operations.
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iii. “Refinancing Project” means the fair market value of the Eligible Fixed Asset(s) securing the Qualified Debt and any other fixed assets acceptable to SBA (Additional fixed assets may be added only when needed to comply with the 90% Loan-to-Value Limitation described in C.10.i below). A refinancing project may include funds for Eligible Business Expenses.
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iv. “Eligible Business Expenses (EBE)” are payments of the business for either Operating Expenses or Other Secured Debt that: a) Are limited to the “Operating Expenses” which are expenses of the business that were incurred but not paid prior to the date of the 504 application or that will become due for payment within 18 months after the date of application. Examples include salaries, rent, utilities, inventory, and other expenses of the business that are not capital expenditures. b) Business Lines of credit and business credit cards may be included, if: i) Loan proceeds are not used to cover any personal expenses; ii) If the line of credit and/or credit card was used for personal expenses, the Applicant must identify which purchases were for personal expenses and deduct that amount from the amount to be refinanced as an EBE; iii) The line of credit and/or credit card are in the name of the small business; and iv) The Applicant and the CDC certify in the loan application that the debt being refinanced was incurred exclusively for EBE. c) “Other Secured Debt” is debt incurred prior to the 504 loan application that has been secured by the same Eligible Fixed Assets securing the Qualified Debt and incurred for the benefit of the Borrower and/or Operating Company. Other Secured Debt does not include debt incurred for the purposes of capital expenditures, and any existing liens must be released or subordinated to the amount of the debt being refinanced by the 504 loan. i) This debt must be secured for at least 6 months prior to the date of application by the same Eligible Fixed Asset(s) securing the Qualified Debt; and ii) The Borrower has been current on all payments due for not less than 12 months preceding the date of application. “Current on all payments due” means that no payment was more than 30 days past due from either the original payment terms or modified payment terms (including deferments) if such modification was agreed to in writing by the Borrower and the lender of the existing debt note less than one year prior to the date of application. d) If the Borrower is requesting that the refinancing include EBE, the application must include a specific description and an itemization of the amount of each expense. e) The CDC must retain in its file the following EBE documentation: i) EBE must be itemized (a gross figure is not acceptable). ii) The CDC’s credit memorandum must: (a) Document the nature of the EBE; (b) Provide the itemization of EBE; and (c) Include the CDC’s certification that the EBE are eligible as defined in this Paragraph. The Applicant must have been in operation for all of the 2-year period ending on the date that the application is submitted, as evidenced by the financial statements submitted at the time of application. If the business has been in operation for more than 2 years at the time of application, and there has been a change of ownership in the business, the CDC must determine, under the standards contained in the definition of New Business in Appendix 3, whether the Applicant should be considered a New Business and the application declined. The CDC must document the justification for its determination in its credit memorandum. The Refinancing Project must include Qualified Debt, as defined below. In addition, the Refinancing Project may include Eligible Business Expenses, as defined below. The amount of the Refinancing Project is also subject to the Loan- to-Value Limitations in Paragraph C.10.i below. In accordance with 13 CFR § 120.882(g)(5), the funding for the Refinancing Project must come from three sources based on the current fair market value of the fixed assets serving as collateral for the Refinancing Project, including an amount from the Third Party Lender that is at least as much as the 504 loan (Net Debenture proceeds), not more than 40% from the 504 loan, and not less than either a 10% or 15% contribution from the Borrower as determined under 13 CFR § 120.882(g)(5). If the Qualified Debt is not fully satisfied by the funding provided by the Refinancing Project, the lender of the Qualified Debt must take one of the following actions, or some combination thereof, to address the deficiency; i. Forgiveness of all or part of the deficiency; ii. Acceptance of payment by the Borrower; or
SOP 50 10 8 C.Ch1.C.10.i.iii
iii. Acceptance of a Note executed by the Borrower for the balance, or any portion of the balance. Such Note must be subordinate to the 504 loan if the Note and the 504 loan are secured by any of the same collateral. The Note is subject to any other restrictions that SBA may establish to protect its creditor position, including standby requirements. If the Qualified Debt (including the original loan as defined in Paragraph C.10.a.i.a)ii) above) was for the construction of a new building, or the acquisition, renovation, or reconstruction of an existing building, and such loan would not have satisfied the leasing policies set forth in 13 CFR §§ 120.131 and 120.870(b), Borrower must be able to demonstrate compliance with 13 CFR § 120.131(b) for existing buildings as of the date of application for assistance. When the Refinancing Project involves a Limited or Special Purpose Property (see the Limited or Special Purpose Property List at Paragraph E.1.c.i.c) below), the Borrower must comply with the Borrower contribution requirements in Paragraph E.1.c, below. Notwithstanding 13 CFR § 120.860, a debt may be refinanced under this Paragraph 10 if the Refinancing Project does not meet the job creation or other economic development objectives set forth in 13 CFR § 120.861 or 13 CFR § 120.862. In such case, the 504 loan may not exceed the product obtained by multiplying the number of employees of the Borrower by $90,000. The number of employees of the Borrower is equal to the sum of: i. The number of full-time employees of the Borrower on the date of the application, and ii. The product obtained by multiplying: a) The number of part-time employees of the Borrower on the date of the application; by b) The quotient obtained by dividing the average number of hours each part time employee of the Borrower works each week by 40. Example: 30 full-time employees and 35 part-time employees working 20 hours per week is calculated as follows: 30 + (35 x (20/40)) = 47.5. The maximum amount of the 504 loan would be 47.5 multiplied by $90,000, or $4,275,000. Loan-to-Value Limitations i. For projects that refinance only Qualified Debt, the maximum loan to value of the Refinancing Project allowed is 90%. ii. For projects when the amount of Qualified Debt being refinanced is more than 90 percent of the value of the Eligible Fixed Asset(s) securing the Qualified Debt, the Borrower must provide additional cash or other fixed asset collateral acceptable to SBA so as not to exceed a 90% loan to value of the Refinancing Project. iii. For any projects that include the financing of Eligible Business Expenses, a maximum 90% loan to value of the Refinancing Project will apply. The value of the Refinancing Project may not be increased by adding additional collateral. Fees i. In addition to the annual guarantee fee assessed under 13 CFR § 120.971(d)(2), Borrower must pay SBA a supplemental annual guarantee fee to cover any additional cost attributable to the refinancing in an amount established by SBA each fiscal year. The CDC should follow the instructions in the SBA-issued E-Tran Terms and Conditions to ensure the fee is correct. ii. SBA will review the fee annually to determine whether it needs to be changed and, if so, will issue a notice of any change. Other Implementation Guidelines i. Borrower must meet all current 504 Loan Program occupancy requirements at time of application.
SOP 50 10 8 C.Ch1.C.10.i.ii
ii. PCLP CDCs may not approve, under their delegated authority, the refinancing of an existing loan of the PCLP CDC, or its affiliates (i.e., Same Institution Debt) and must submit the 504 loan to SBA for approval. This requirement is consistent with SBA’s long-standing policy of prohibiting its participating lenders from using their delegated authority to approve the financing of same institution debt due to the potential conflict of interest and the risk of the 504 loan proceeds being used to shift to SBA a potential loss from the existing debt. iii. Loans for Debt Refinance without Expansion must be disbursed within 9 months after loan approval. The D/FA or designee may approve a request for extension of the disbursement period for an additional 6 months for good cause. Documentation Requirements
SOP 50 10 8 C.Ch1.C.10.i
i. Credit memorandum. The CDC must provide an analysis in its credit memorandum that the proposed debt refinancing satisfies each of the requirements of this debt refinancing program, including the requirements described in paragraphs 10.a.i.a) through h), 10.a.iv.a) through e), 10.b., 10.d., 10.e., 10.f., and 10.i. above. ii. In its commitment letter (Exhibit 14 of SBA Form 1244), the Third Party Lender must certify that it has no reason to believe that the following statements in paragraphs a) and b) below are not true: a) Either:
SOP 50 10 8 C.Ch1.C.10.i.i
i) Substantially all (75% or more) of the proceeds of the indebtedness being refinanced were used to acquire an Eligible Fixed Asset (e.g., land, including a building situated thereon, to construct a building thereon, or to purchase equipment) and the remaining amount (25% or less) was incurred for the benefit of the small business seeking the refinancing; or ii) If the Eligible Fixed Asset(s) was originally financed through a commercial loan (the “original loan”) that was subsequently refinanced one or more times: (a) Substantially all (75% or more) of the proceeds of the original loan was used to acquire an Eligible Fixed Asset (e.g., land, including a building situated thereon, to construct a building thereon, or to purchase equipment) and the remaining (25% or less) was incurred for benefit of the small business seeking the refinancing; and (b) The existing debt is the most recent refinancing of the original loan. b) All of the proceeds of the indebtedness being refinanced were used for the benefit of the small business. c) In addition, if the indebtedness being refinanced is debt of the Third Party Lender, or any of its affiliates (Same Institution Debt), the Third Party Lender must certify in its commitment letter that it is not in a position to sustain a loss on the Refinancing Project causing a shift to SBA of all or part of a potential loss from the existing debt. iii. Transcripts. The CDC must obtain a copy of the current transcript of account, or equivalent, for the Qualified Debt being refinanced and submit and/or retain it as required by SBA Form 1244. See Exhibit 19 of SBA Form 1244. The CDC must determine whether the loan to be refinanced involves a creditor that is in a position to sustain a loss causing a shift to SBA of all or part of a potential loss from an existing debt and document the justification for its determination in the credit memorandum. It is prohibited for a 504 Loan to be used to pay any creditor in a position to sustain a loss causing a shift to SBA of all or part of a potential loss from an existing debt under 13 CFR § 120.884(b).
SOP 50 10 8 C.Ch1.C.10.i.iv
iv. Appraisal. Appraisals are not required at time of application. Appraisals dated within 12 months of the date the application was approved are required prior to closing, and appraisals must otherwise comply with the requirements for appraisals in Paragraph E.2.b, below.
SOP 50 10 8 C.Ch1.C.10.v
v. Documentation to Verify Lien(s) at Application. In considering the Borrower’s application, the CDC must obtain evidence that lien(s) are securing the Qualified Debt with Eligible Fixed Asset(s), and state in its credit memorandum that it has verified that the lien(s) has been in place for at least 6 months prior to the date of application. The CDC must retain the evidence of the liens in its records (e.g., Preliminary Title Report, Mortgage Deed of Trust, or UCC-1 filing).
SOP 50 10 8 C.Ch1.C.10.v.vi
vi. Interim Lender Documentation. The Interim Lender must execute SBA Form 2288R, Interim Lender Certification for Refinancing Program, similar to what is required in all 504 closings. Same Institution Debt i. When the loan being refinanced is Same Institution Debt (as defined in 13 CFR § 120.882(g)(16)), and the loan is not part of an existing 504 Project and is held 100% by the lender that will be the Third Party Lender of the Refinancing Project, the Third Party Lender may modify its existing loan documents (Note, Deed of Trust/Mortgage, etc.) instead of requiring the Borrower to execute and record new loan documents for the Third Party Loan. ii. All modified loan documents must meet SBA’s regulatory requirements for a Third Party Loan (see 13 CFR §§ 120.920 and 120.921). iii. When the loan being refinanced is Same Institution Debt, either an Interim Loan or an escrow account may be used, and: a) The Third Party Lender (who, in this case, is also the Lender of the debt being refinanced) must execute SBA Form 2416, “Lender Certification for Refinanced Loan.” b) The CDC may create an escrow account (“account”) at the time of closing of the 504 loan for the purpose of holding the Borrower’s cash contribution, if any, and the net debenture proceeds. c) The account will be established in accordance with an Escrow Agreement, which must be executed by the Borrower, the Third Party Lender, the Escrow Agent, and the CDC. The account may be held by the CDC attorney or Title Company or other party approved by SBA. d) The Borrower’s cash contribution, if any, must be deposited into the account at the time of closing of the 504 loan. e) A copy of the Escrow Agreement must be provided to SBA with evidence of funding by Borrower’s cash contribution, if any, at the time of closing of the 504 loan. f) The net debenture proceeds must be wired to the account, and all funds may be released only upon written approval by the CDC and SBA, provided that CDC/SBA have the required lien positions on the collateral as set forth in the E-Tran Terms and Conditions and Debenture Guaranty. g) The debt to be refinanced will be satisfied by payment of the escrowed funds to the Third Party Lender. A 504 Project cannot be approved to refinance debt owed: i. To an Associate, which is prohibited by 13 CFR § 120.130(a); ii. To an SBIC or a New Markets Venture Capital Company (NMVCC), which is prohibited by 13 CFR § 120.130(b); or iii. To any creditor in a position to sustain a loss causing a shift to SBA of all or a part of a potential loss from an existing debt. 13 CFR § 120.884(b).
Operationalizing SBA SOP 50 10 8, C.Ch1.C.10 — Permissible Debt Refinance without Expansion
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