The Small Business Administration (SBA) has made efforts to reduce the burdens placed on a small business attempting to refinance its business debts during these tough economic times. One such change has been the removal of the arduous task of proving all credit card obligations were for a legitimate business purpose before those debts could be refinanced using an SBA loan. Under the current regulations a small business may refinance any credit card debts incurred for a business purpose without being required to provide documentation for those debts, so long as the borrower certifies the credit card debt it is seeking to refinance was “incurred exclusively for business related purposes” and the credit card is in the name of the business. Prior to the October 1, 2009 issuance of SOP 50 10 5(B), the regulations provided little clarity on documentation requirements for refinancing credit card debt and often led to the lender requiring that a borrower prove the credit card purchases were business-related debt with copies of credit card statements and the individual receipts for all purchases on the credit card, even though the credit card was in the name of the business.
The new regulations also provide clarification of how credit card debts may be refinanced using an SBA loan when the credit card is issued in an individual’s name, but the debt was incurred for a business-related purpose. Under the new regulations a borrower may refinance credit card debt in this situation by certifying the amount to be paid off with loan proceeds was “used exclusively for business expenses” and by providing credit card statements and individual receipts for any of those expenses over $100. Though the documentation burden has not been eliminated completely, the minimum upon which lenders now rely has substantially reduced that burden for many small businesses, and the new regulations provide significantly more guidance than existed previously.
The end result of these modifications has created greater clarity for SBA lenders and borrowers regarding the standards each must apply when it comes to refinancing credit card debt. This clarity has made it easier for small businesses to refinance credit card debts that once may have been paid off monthly and resulted in little to no recurring monthly balances, but due to the “slow down,” have resulted in revolving and growing monthly balances for many small businesses at significantly higher rates than the current 6% SBA loan interest rate.
For further information on documenting credit card debts for SBA loans or general inquiries regarding SBA loans, please contact Joe Hall or Rick Lawrence.
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