Yes, you can consolidate business loans from different lenders, though not every business or every loan will qualify. Almost all businesses carry some amount of debt. But when a loan is on bad terms and you can’t make the payments, you need to refinance it. If you’ve got a bunch of loans from several different lenders, you’re going to have a hard time juggling them. What you can do is get an SBA 7(a) loan to pay off the debt and consolidate it all into one loan. If you’ve had trouble getting funding for your business, the program might be a good fit for you. It can also be used to buy real estate or land, finance working capital, or fund equipment.
Loan consolidation happens when you combine debt from multiple loans into a single consolidated loan. You can do this with personal loans, credit card debt, and business loans. The reason to do it is simple: you want to make your debt easier to manage, typically by consolidating multiple monthly payments into one. If you have multiple loans from multiple lenders, some of which you are paying with weekly payments and others with monthly payments, that alone can be reason enough to look for a way out.
SBA 7(a) loans can be used to refinance business debt into something with a lower monthly payment and/or a longer repayment term, in some cases. The SBA doesn’t actually lend money here. Instead, you’ll get a loan from a bank or credit union or other lending institution. The SBA will guarantee the loan by promising to cover some of the balance if you default. This is good for the lender because it lowers their risk. Getting the SBA’s sign-off does add some time and paperwork to the process. However, 7(a) loans usually come with better terms than a typical small business loan. And they may include some sort of counseling services.
Higher Standards than Some Other Small Business Loans
An SBA 7(a) loan is going to have higher standards than some other small business loans. You’ll need a minimum credit score of 690, no bankruptcies for the last three years, a down payment of at least 10%, a clean criminal record or an explanation for any misdemeanor convictions, and no outstanding debts to the federal government. If you’re using the loan for a franchise, you’ll need to prove that you’ve already paid the franchise fee. The business has to be a for-profit entity, a “small business” per SBA definition, based in the United States, have some equity invested, and there should be no other financing options left. If it doesn’t qualify, then you may have to look into other small business financing methods to restructure your debt.
You can’t refinance just anything with an SBA 7(a) loan. There are rules. For one, you have to show the lender proof that the debt you want to refinance is currently on unfavorable terms. That could mean its maturity date has ballooned or is completely inappropriate for the original purpose of the debt, maybe the interest rate is above the SBA maximum, or it’s a debt on a revolving line or credit card. Also, the original purpose of that debt has to have been something that would’ve qualified for SBA financing at the time: buying land, constructing a new building, improving property, renovating, purchasing equipment, furniture, inventory, working capital, or acquiring a business. And finally, the refinancing has to significantly benefit the small business. The SBA doesn’t allow refinancing just for the heck of it. When your loans come from different lenders, each one you want to roll in has to be documented this way.
Things are different with credit card debt, though. First, the credit card you want to pay off needs to be for business use only in order to qualify for refinancing. If there’s any personal stuff on that card, you’re out of luck. As for who stands behind the loan, all owners of the business with at least a 20% stake in it have to give a personal guarantee. A spouse with 5% or more equity also has to provide a guarantee if the combined equity of you and your spouse is at least 20%, for example if you have 15% and they have 5%. A sole proprietor doesn’t need to sign a guarantee, because they’re signing the promissory note anyway.
The lender has to find out more about you, the owner, as well as more about the business. What kind of business it is, what size, how old, where it’s located, what it does. The lender needs to know your legal name, your address and your immigration status. To get that information the lender asks you to fill out SBA Form 1919 (borrower information), SBA Form 912 (statement of personal history), SBA Form 413 (personal financial statement), and any financial statements including a balance sheet, profit and loss and income projection. If you’re refinancing debt, the lender also needs proof that the debt qualifies for refinancing, which means you need documents that show each loan’s terms, balance and lender; documentation of the purpose of the original loan; and financial statements and projections that show how the business will benefit from the refinancing. You might get some help with these documents, for example from a lawyer or a translator, but the lender has to report who helped you to the SBA.
Sarah Started a Cafe
Here is how it can play out. Sarah started a cafe in Bethesda, Maryland and her business was a hit in her community. She decided to expand the dining area and add more modern kitchen equipment. In order to do so, Sarah took out several high-interest, short-term loans from different lenders. Business was booming at the cafe, but her high monthly payments were making cash flow tight and limiting her ability to invest in the business. She decided to refinance with an SBA 7(a) loan, and she headed to a local bank. After reviewing her financials and her business performance, Sarah received a 10-year, $150,000 SBA 7(a) loan for a low, fixed rate. This loan paid off all her high-interest debt and gave her a longer repayment term. Sarah’s monthly payments were lower, giving her immediate cash flow relief and allowing her to spend money on marketing and menu development.
Do Your Homework
Before you go down this road, be honest with yourself about where your business stands. Take a hard look at your liabilities. See where the money’s going and where it’s coming from. Ask yourself: does this loan make sense for my business or is this money better spent elsewhere? And what is the loan’s impact on my cash flow? Do your homework. You may find that another program or product would work better for you and your business.
When you’re ready for an SBA 7(a) loan, get in touch with a lender to kick things off. There’s all kinds of SBA 7(a) loan products, like the Standard 7(a) and the Express loan, and it can feel pretty overwhelming trying to make sense of all the paperwork, terms and jargon involved. But if your business or your debt doesn’t qualify, you’ll need to look into other options for reorganizing your debt.
