Recap SBA 7a loan

January 26, 2024

by a searcher from University of Texas at Austin in Houston, TX, USA

In the current market conditions, what are the general guidelines for recapping a 7a loan into a product without a personal guarantee? I've heard a minimum full year of ownership and $2m in EBITDA for some lenders.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. It really depends on the size of the loan, the amount of hard collateral in place, and the cash flow. In general most SBA 7A loans are to smaller businesses that are most likely to receive replacement financing from a conventional bank. Most conventional banks in their small business to lower middle market lending units require as a general rule personal guarantees on all debt. Typically non-recourse is not available unless you have a deal that is fully collateralized by hard business assets (equipment, inventory, A/R, real estate, etc. at reasonable advance rates), where the DSCR is typically 1.50x or greater for a couple of years, where there is strong equity on the balance sheet and the debt to tangible net worth is under 3x's or maybe under 2x's, and typically where there are accountant prepared reviewed or audited financial statements in place providing the lender additional comfort on the quality of the financial reporting.

If you are looking to refinance without the above and expecting a non-recourse loan, I think the chances are low. There are some non-bank lenders that might offer non-recourse options, but you are going to likely have a much higher interest rate. Also, typically speaking conventional bank financing and even some non-bank financing options likely will not provide the same loan term of ten years you get with the SBA 7A loan. I hope this information helps.

Reply by an intermediary
from Clemson University in Raleigh, NC, USA

SBA required 24 months of debt service to recap with another SBA guaranteed product. If you’re looking at conventional the lenders individual policies will control. You will want to verify what if any prepayment penalties may apply to your current loan.

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