If you currently have a business loan or Small Business Administration (SBA) loan but aren’t happy with the rate, term, or outstanding balance, you might consider paying it off with a conventional cash-out refinance. Doing so can save money and simplify your finances — but it can also put your home at risk and lead to higher costs than you might expect. Here’s what you need to know.
SBA Rates vs. Cash-Out Refinance Rates
Compared to cash-out refinance loans, SBA loans typically carry much higher interest rates. SBA rates generally fluctuate between 10.5% and 15% — roughly 3% to 6.5% above the prime rate. The average fixed rate on a conventional cash-out refinance, by comparison, is significantly lower, making it an appealing option for borrowers looking to reduce their cost of debt.
Pros and Cons of Refinancing an SBA Loan
Here’s a quick overview of the key benefits and drawbacks of using a cash-out refinance to pay off a business or SBA loan:
| Pros | Cons |
|---|---|
| Lower interest rates than typical business or SBA loans, reducing monthly payments and overall borrowing costs | Your home becomes collateral — defaulting risks foreclosure |
| Possible mortgage-interest tax deductions | Extending the loan term to lower payments can add thousands in total interest over time |
| Consolidates business and mortgage debts into a single monthly payment | Refinancing involves paperwork, underwriting delays, and closing costs (typically 2–5% of the loan) |
| Flexibility to shorten or lengthen the repayment period | Tying business debt to your mortgage mixes personal and business finances, exposing personal assets to business risks |
Who Is a Cash-Out Refinance Good For?
This strategy works best for homeowners with substantial equity — generally 20% or more — who want to use a cash-out refinance to secure better loan terms and lower interest rates than a typical business loan offers. Strong credit and stable, predictable income are important, since lenders favor borrowers who can demonstrate financial reliability. It’s especially appealing for anyone facing high interest rates on existing business debt or looking to improve monthly cash flow.
How to Qualify for a Cash-Out Refinance to Pay Off Business Debt
Here’s how the process typically unfolds:
- Assess your equity: Calculate how much home equity you have available to cover the cash-out amount and your business debt.
- Review your credit: Pull your credit score and reports to confirm you meet conventional mortgage requirements. Refi.com requires a minimum credit score of 660 for a conventional cash-out refinance.
- Compare lenders: Request multiple rate and term quotes to find the most competitive cash-out refinance offer.
- Order an appraisal: Your lender will require a professional appraisal to verify your home’s current market value.
- Submit your application: Complete the cash-out refinance application with your chosen lender, providing income documentation and loan details.
- Underwriting and approval: The lender will review your financial profile, which can take several weeks.
- Close the loan: Sign the new mortgage documents, pay closing costs (typically 2–5% of the loan amount), and receive your cash-out proceeds.
- Pay off your business debt: Use the funds to pay down or eliminate your outstanding business loan.
Expect the entire process to take 30 to 60 days, depending on your financial profile and the lender you choose.
Alternatives to a Cash-Out Refinance
If you’d rather not tap your home equity through a cash-out refinance, here are some alternatives for paying down or replacing your business debt:
- New small business loan or SBA loan: Refinance your current balance into a fresh business loan or SBA program. Keeps your home mortgage intact and avoids using your house as collateral.
- Small business line of credit: A revolving line of credit offers flexible borrowing and repayment, with interest only accruing on what you draw.
- Home equity loan or HELOC: Borrow against your home equity with a lump-sum loan or a draw-on-demand line. Often carries lower rates than business-only loans, though your home is still used as collateral. Learn more about Refi.com’s home equity options.
- Private secured or unsecured loan: Fast approval with no mortgage paperwork, though unsecured rates tend to be higher.
Key Considerations
Before moving forward, compare the total cost of each option — including closing fees, origination charges, and long-term interest — to confirm you’re actually saving money. Keep an eye on current and projected interest rates, since locking in a lower rate now could save you thousands over the life of the loan.
Think carefully about your personal and business cash-flow needs, and how much risk you’re comfortable taking on before using your home as collateral. A conversation with a trusted financial advisor can help you weigh the trade-offs and ensure your decision supports your long-term goals.
Ready to explore your options? Start your cash-out refinance application with Refi.com today.
