SBA SOP 50 10 8, C.Ch1.C.11 — Permissible Debt Refinancing with Expansion
Verbatim text of SBA SOP 50 10 8 section C.Ch1.C.11 (Permissible Debt Refinancing with Expansion), effective 2025-06-01. 3 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 SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.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.11 — Permissible Debt Refinancing with 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.11
11. Permissible Debt Refinancing with Expansion 13 CFR § 120.882(e) 504 Projects may include a limited amount of debt refinancing with expansion, as follows. If the Project involves expansion of an Applicant, any amount of existing indebtedness that does not exceed 100% of the cost of the expansion may be refinanced. The debt being refinanced will be added to the expansion cost to establish the total project costs, if all the conditions discussed below are met. A “Project involves Expansion” if it involves the acquisition, construction, or improvement of land, building or equipment for use by the Applicant. The CDC must provide an analysis in its credit memorandum that the proposed debt refinancing satisfies each of the requirements below: i. Either: a) Substantially all (75% or more) of the proceeds of the existing debt was used to acquire a fixed asset(s) that was eligible for financing under the 504 loan program and the remaining amount (25% or less) was incurred for the benefit of the small business seeking refinancing; or b) If the fixed asset(s) was originally financed through a commercial loan (hereafter the “original loan”) that was subsequently refinanced one or more times:
SOP 50 10 8 C.Ch1.C.11.i
i) Substantially all (75% or more) of the proceeds of the original loan was used to acquire the fixed asset(s) and the remaining amount (25% or less) was incurred for the benefit of the small business seeking the refinancing; and ii) The existing debt is the most recent refinancing of the original loan. ii. The existing indebtedness is collateralized by fixed assets. iii. The 504 eligible fixed assets collateralizing any debt to be refinanced or relating to the portion of debt being refinanced in the case of a partial refinance, must also collateralize the 504 Loan unless SBA (SLPC) approves a waiver due to extraordinary circumstances. PCLP CDCs may not use their delegated authority to approve a loan requiring this waiver. The lender of the existing indebtedness must release, subordinate (if the total existing indebtedness is not being refinanced) or assign its lien on the 504 eligible fixed assets to the lien of SBA and/or the Third Party Lender so that the Third Party Lender and/or SBA will maintain the same lien position on the collateral that was held by the lender whose debt is being refinanced. iv. The existing indebtedness was incurred for the benefit of the small business concern. a) The small business for which the debt is being refinanced must be the same small business for which any new Project costs are incurred. The debts being refinanced may be owed by an Operating Company, an Eligible Passive Company or both. b) An existing 504 loan may be refinanced if it meets the conditions of this Paragraph and either: both the Third Party Loan and the 504 loan are being refinanced; or the Third Party Loan has been paid in full and the 504 loan needs to be refinanced as part of a larger transaction to provide funding for expansion or renovations to the Project Property. In either case, the CDC and Third Party Lender must document its loan file as to the justification to refinance the existing SBA-guaranteed 504 loan. Any applicable 504 prepayment penalties will apply. A Third Party Loan may not be refinanced with an SBA-guaranteed loan. (13 CFR § 120.920(b)) c) An existing 7(a) loan may be refinanced in whole or in part. A 504 loan may only be refinanced in whole. The CDC must notify an existing 7(a) or 504 Lender in writing by letter or email no less than 10 business days to advise them the existing loan is being refinanced. v. The financing will be used only for refinancing existing indebtedness or costs relating to the Project financed. a) Debt being refinanced does not need to be for assets at the same location or for the same type of property as the Project being financed as long as the operation at the other location has the same NAICS code as the operation at the Project location. b) Costs essential to the refinancing, such as prepayment penalties, financing fees or other refinancing costs, required by the original terms of the debt instrument, may be included in the debt refinance portion of a Project. c) The total debt being refinanced may consist of one or more loans. vi. The financing will provide a substantial benefit to the Borrower when prepayment penalties, financing fees, and other financing costs are accounted for. “Substantial Benefit” means that the portion of the new installment amounts attributable to the debt being refinanced must be less than the existing installment amount(s). The total installment amount is determined by adding the two installment amounts attributable to the refinancing using the interest rate of the most recent debenture funding on the 504 loan and the committed interest rate of the Third Party Lender loan. The total amount must be less than the existing installment amount(s). a) Prepayment penalties, financing fees, and other financing costs must also be added to the amount being refinanced in calculating the reduction in the new installment payment. b) Loans with seasonal payments would meet the Substantial Benefit test if there was an improvement in the installment when calculated by averaging all payments over the most recent twelve month period from date of application and comparing that to the new installment amount attributable to the debt being refinanced. c) Loans with balloon payments meet the Substantial Benefit test independent of the reduction requirement. vii. The Borrower has been current on all payments due on the existing debt for not less than 1 year preceding the date of refinancing. “Date of refinancing” refers to the date the 504 loan is approved by SBA. The CDC must submit a transcript of account, or similar documentation containing detailed payment history from the lender whose debt is being refinanced reflecting that the loan has been current (not to exceed 30 days in arrears) for 1 year (or for the time the debt has been open if less than 1 year). Any unremedied delinquency after approval must be reported to SBA as an adverse change. viii. The financing under section 504 will provide better terms or rate of interest than the existing indebtedness on the date of refinancing. “Better terms or rate of interest” may include longer maturity (but always commensurate with the assets’ useful life), a lower interest rate committed on the Third Party Lender Loan or projected on the 504 Loan, improved collateral conditions, or less restrictive loan covenants. PCLP authority must not be used to refinance Same Institution Debt. “Same Institution Debt” is defined as any debt of the CDC or the Third Party Lender financing the new project, or of affiliates of either. 13 CFR § 120.882(e)(8) Whether the new project is within the CDC’s area of operation is based on the assets newly acquired for the business and not on the assets securing the debt being refinanced. If the assets refinanced or any collateral securing the loan are outside the CDC’s Area of Operations, it is the CDC’s responsibility to establish that the CDC is capable of closing and servicing the loan and monitoring the collateral. Evidence must be approved by SBA with the exception of PCLP CDCs, which must document the file with evidence regarding the CDC’s capability to close and service the loan and monitor the collateral. Instruments resulting in transfer of ownership of the property to the Applicant may be eligible for refinancing, including, but not limited to, land sales contracts, contracts for deed or capital leases. The purchase of property under an operating lease is eligible for 504 financing, but the operating lease itself is not eligible for debt refinancing. In order to be eligible for debt refinancing, a copy of the corresponding debt and lien instruments must be submitted with the application. Equity in land and/or building that is being refinanced may be included as Borrower’s equity as set forth under present policy. 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 i. and ii. below are not true: i. Either: a) 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 b) If the Eligible Fixed Asset(s) was originally financed through a commercial loan (the “original loan”) that was subsequently refinanced one or more times:
SOP 50 10 8 C.Ch1.C.11.i.i
i) 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 ii) The existing debt is the most recent refinancing of the original loan. ii. All of the proceeds of the indebtedness being refinanced were used for the benefit of the small business. iii. 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 causing a shift to SBA of all or part of a potential loss from the existing debt. 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.11 — Permissible Debt Refinancing with Expansion
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