Buying Your Building? Bring Your Debt

What "Rolling In" Actually Means

When we talk about rolling existing debt into an SBA real estate purchase, we're talking about refinancing your current business debt as part of the same loan that finances the building.

Instead of:

• SBA loan for the building

• Equipment loan staying in place

• Line of credit staying in place

You get:

• One SBA loan covering the building AND paying off the other debt

The appeal is obvious. One payment. Often a lower blended rate. Longer amortization. Simpler cash flow management.

But the SBA doesn't let you roll in just anything. They have rules about what qualifies, and lenders interpret those rules with varying degrees of flexibility.

What Qualifies for Rollover

The SBA's general principle: they want to see that the refinancing genuinely improves your situation. They're not interested in shuffling debt around for no reason.

Debt that typically qualifies:

• Equipment loans used for legitimate business purposes, currently in good standing, where the new terms improve your situation (better rate, longer term, lower payment)

• Existing lines of credit that are business-purpose and in good standing

• Previous SBA loans (yes, you can refinance an existing SBA loan into a new one under certain conditions)

• Seller notes from prior transactions that you're still paying down

• Term loans from banks or alternative lenders used for business purposes

The key factors lenders look at:

1. Was the debt used for legitimate business purposes?

2. Is it currently in good standing (no defaults, no restructuring)?

3. Does refinancing it demonstrably improve your cash flow?

If you can check all three boxes, you're in good shape.

What Typically Does NOT Qualify

Here's where borrowers get surprised:

• Personal debt, even if you used the proceeds for your business. That credit card you maxed out buying inventory? Probably not eligible. The home equity line you tapped for working capital? Usually no.

• Debt in default or recently restructured. If you negotiated a workout with a lender six months ago, that debt likely won't qualify.

• Related-party debt can be tricky. If you owe money to a family member who loaned you startup capital, some lenders won't touch it.

• Debt where refinancing doesn't show clear benefit. If your current equipment loan is at 6% with 18 months left and the SBA loan would be at 7.5% with 25 years of amortization, the lender may question why you're rolling it in.

The frustrating part: different lenders interpret these rules differently. One lender might decline to roll in a particular debt while another lender will do it without hesitation.

504 vs 7(a): Which Program Makes Sense?

When you're buying real estate and want to roll in existing debt, you have two main SBA options. Each has tradeoffs.

SBA 504:

• Generally better rates (often 0.5% to 1% lower than 7(a))

• Fixed rate on the CDC portion (the SBA piece)

• More rigid structure

• Two separate closings (bank loan + CDC loan)

• Primarily designed for real estate and major equipment

• Less flexibility for rolling in miscellaneous business debt

SBA 7(a):

• Slightly higher rates

• More flexibility on what debt you can roll in

• Single closing (simpler process)

• Can include working capital, various debt types, and the real estate in one package

• Variable rate (though you can sometimes get fixed)

When 504 makes sense: Your primary goal is the real estate, the debt you want to roll in is minimal or straightforward, and you're optimizing for the lowest possible rate.

When 7(a) makes sense: You have a more complex debt picture, you want everything consolidated in one loan with one closing, and flexibility matters more than squeezing out the absolute lowest rate.

For many borrowers doing a building purchase with debt consolidation, 7(a) ends up being the cleaner path despite the slightly higher rate.

Structuring Tips

A few things that will make this process smoother:

Get your debt schedule together early. Before you even talk to lenders, create a simple spreadsheet: lender name, original amount, current balance, interest rate, monthly payment, maturity date, collateral. Hand this to your lender upfront.

Be ready to explain each debt. "What was this $150K loan used for?" is a question you'll hear. Have clear answers.

Understand the math on total loan size. Every dollar of debt you roll in adds to your total SBA loan. If you're buying a $2M building and want to roll in $500K of debt, you're now looking at a $2.5M loan (plus closing costs, potential renovation, working capital). Make sure you're not bumping into SBA loan limits or stretching your debt service coverage too thin.

Check seasoning requirements. Some lenders want to see that the debt you're rolling in has been on the books for a minimum period (often 12+ months). Recently incurred debt may not qualify.

Don't assume rolling in is always better. Run the numbers. Sometimes keeping a low-rate equipment loan separate and just financing the building makes more sense than consolidating everything.

Common Mistakes

Assuming all debt can roll in without checking. Borrowers get deep into the process before discovering that a particular debt doesn't qualify. Surface your full debt picture early.

Waiting too long to share your debt schedule. Lenders need this information to structure the deal. Surprising them in week four with "oh, I also have this $200K line I want to pay off" creates problems.

Not running the comparison. Consolidation feels good psychologically, but it's not always the best financial move. Compare total interest paid, monthly cash flow, and payoff timelines before deciding.

Forgetting about SBA exposure limits. If you already have SBA debt, rolling more in means more exposure to SBA limits. Make sure you understand how this affects your future borrowing capacity.

The Bottom Line

Rolling existing debt into an SBA real estate purchase can simplify your life and improve cash flow. But it's not automatic, and the details matter.

Know what qualifies. Pick the right program for your situation. Get your documentation ready early. And run the numbers to make sure consolidation actually makes sense for your specific circumstances.

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