“Am I stuck with this loan forever?” That’s the question many business owners start asking once the excitement of a loan fades and the monthly payments start to pile up.
A recent Federal Reserve survey found that 70% of small businesses carry outstanding debt. While loans often play a key role in helping companies launch, expand, or seize opportunities, they can also become burdensome over time, especially if the repayment terms no longer align with the business’s reality.
“Too often I see owners working harder for their debt than for themselves,” says Javier Jorge, Director of Government Guaranteed Lending at Locality Bank. “Debt can serve a valuable purpose, but it shouldn’t define the future of your business.”
Why Refinance Instead of Restructuring Your Budget?
Refinancing through programs like the SBA 7(a) loan can provide a practical solution for businesses weighed down by costly or mismatched debt. Instead of continuing to make payments on loans that no longer serve you, refinancing can:
- Reduce monthly payments
- Improve cash flow
- Consolidate multiple debts into a single manageable structure
A Built-In Benefit: the 10% Rule
Unlike typical refinancing, the Small Business Administration (SBA) requires lenders to show that the new loan improves the borrower’s situation. “The SBA actually builds in protections,” Jorge explains. “We have to show that we’re improving your monthly payment by at least 10%. That’s real, measurable relief.”
Clearing Up Misconceptions
One common hurdle for owners is thinking their existing debt makes them ineligible for SBA refinancing. In reality, the options are broader than many believe. Business credit cards, lines of credit, and even personal loans may qualify, as long as they were used for legitimate business purposes and properly documented.
Another misconception is that refinancing locks you into SBA programs permanently. On the contrary, Jorge notes that SBA 7(a) loans often serve as a stepping stone: “After three years, many businesses are in a great position to refinance again into a fixed-rate SBA 504 or even a conventional loan. By then, you’ve built the track record lenders want to see.”
Taking the Next Step
If debt feels like it’s controlling your business, refinancing could be the way to change that. By lowering payments and freeing up cash, you can reinvest in growth, your team, and your long-term goals.
“The message to small business owners is simple,” Jorge says. “Don’t work for your debtors. Work for yourself.”
Disclaimer: The information provided in this content is for general educational purposes only and does not constitute professional advice. Locality Bank makes no warranty, express or implied, nor assumes any legal liability or any responsibility for the accuracy, correctness, completeness, or any actions taken based on the information provided. Loan programs, terms, and requirements are subject to change. Deposit accounts are subject to account opening requirements. Always consult a qualified professional for specific guidance related to your situation.
For more information, reach out to Javier directly at jjorge@localitybank.com or book a meeting on his calendar here.
