SBA refinance calculator: which debts qualify, the 10% test and the total cost

What it does

It sorts the debts. SBA's manual says which debts a 7(a) loan may pay off. A debt that is behind on its payments, a factoring agreement and a cash advance that is still being collected all stay out. The calculator leaves them out of the new loan and says why.

It runs the 10% test. For most debt, the new installment must be at least 10% lower than the old ones taken together. Balloon and demand notes, credit cards, home equity lines and revolving lines are exempt, and the calculator leaves them out of the test while keeping them in the loan.

It shows the total. The test looks only at the monthly payment. If you enter the payments left on a debt, the calculator compares what it will cost to the end as it stands with what it will cost inside the new loan.

Our guide to refinancing with an SBA loan covers the rules in full.

The example it opens on

A business wants to replace its debts with one payment. The 2 term loans cost $4,700 a month between them. They are the only debts in the test, so the new installment on them may be at most $4,230.

Over 10 years at 9.75%, their share of the new loan costs $1,373 a month. That is 71% lower, and the test is passed. The whole loan of $125,000, card included, costs $1,635 a month against $5,300 today.

The cash advance cannot go in while it is still being collected. Its $9,000 a month carries on, so the business would pay $10,635 a month in all, down from $14,300.

Change one thing at a time.

• Shorten the term to 2 years. The installment on the tested debts becomes $4,833. The test fails.
• Add the guaranty fee to the loan. The fee is $2,125 and the tested installment rises to $1,396.
• Convert the advance. Set its months as a term loan to 24 and its payment to $1,900. It joins the loan, which becomes $165,000.

Installment and total cost

The term loans in the example have 34 and 20 payments left, which comes to $123,400. Over 10 years the same debt costs $164,771: $41,371 more, in exchange for a payment 71% lower.

Over 3 years it costs $121,527, which is less than the debts cost as they stand, and the test is still passed.

The two outputs under the list help find the middle. "Shortest term that passes" is the fewest months at which the installment drops by the required 10%. "Highest rate that passes" is the most the new loan could charge at the term you chose.

What to enter

Balance to pay off. Ask each creditor for a payoff figure. It can differ from the balance on a statement, and some debts carry a charge for early repayment.

Paid each month now. For a debt collected daily or weekly, enter a month's worth. A payment of $500 every business day is about $10,800 a month.

Payments left. The number of monthly payments still due if you changed nothing. Leave it empty for cards and lines, which have no schedule.

On time. Untick the box if any payment on the debt went unpaid for more than 29 days in the last 12 months. SBA's rule excludes it.

Cash advances and seller notes. Choosing either opens a box for months. For an advance, enter how long it has been repaid as a term loan, or zero if it is still an advance. For a seller note, enter how many months it has been in place and being repaid. A note on standby does not qualify.

Rate. The calculator starts from the median rate on 7(a) loans of the same size in SBA's records. Type over it if you have a quote.

How the test is applied here

SBA's manual says the new installment must be at least 10% less than "the existing installment amount(s) in aggregate", and that other debt refinanced at the same time may be included in the calculation. It does not say how to treat a loan that also pays off debt exempt from the test.

The calculator takes the debts that are subject to the test, adds up what they cost now, and compares that with the installment on their share of the new loan. The exempt debts are in the loan and in its payment, but not in the comparison. A lender may set the sum out differently. The two lines for the whole loan, new payment and what the same debts cost now, give the figures for the other reading.

What the calculator leaves out

• Whether the business can carry the loan. Passing the 10% test is not approval. The lender must also show that cash flow covers the payments. The DSCR calculator does that sum.
• New money. If the loan also pays for equipment or working capital, that part has its own payment on top.
• Payments that step up. Where an old note has rising payments, SBA compares the new installment with the one expected in the next 12 months. Enter that figure as the payment.
• A rate that moves. 86% of the 7(a) loans in the records have a variable rate. The totals assume the rate stays where it starts.
• Debt owed to the same lender, another SBA loan, and debt first taken on for something SBA does not finance. Each has conditions of its own, set out in the guide.
• Collateral. The new loan must be secured by at least what secured the old debts, and the owners guarantee it. See our guide to guarantees and collateral.
• A fee paid in cash. Tick the box to put the guaranty fee in the loan. Otherwise it is not in any figure.

This page is general information. It is not an offer of credit, and we are not a lender.