How to Refinance a Boutique Motel from Bridge Debt to an SBA Loan

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If you've purchased a boutique motel using bridge financing and are now looking to refinance with an SBA loan, you're in the right place. Refinancing short-term debt with an SBA loan can provide more stability and better terms. However, the process can be complex, and choosing between an SBA 7(a) or SBA 504 loan depends on various factors. Let’s break it all down.

Understanding SBA Loan Eligibility for Refinancing

Not all types of debt qualify for SBA refinancing. The key factor is whether your existing loan is short-term.

Eligible Debt for SBA Refinancing:

• Bridge Loans (1-3 years with a balloon payment) – These are typically eligible.
• Short-term loans with high-interest rates – Often eligible if they meet SBA guidelines.

Ineligible Debt for SBA Refinancing:

• Conventional 25- or 30-year fixed-rate loans – These are generally not eligible for SBA refinancing.

If your boutique motel is currently financed with a bridge loan, an SBA loan could be a great way to secure long-term financing with more favorable terms.

SBA 7(a) vs. SBA 504 for Boutique Motel Refinancing

When choosing between an SBA 7(a) loan and an SBA 504 loan, it’s important to consider the differences in underwriting, interest rates, and prepayment penalties.

SBA 7(a) Loan

• One underwriting process (handled by a Preferred Lender Program (PLP) lender)
• More flexibility for borrowers with unconventional financials
• Three-year declining prepayment penalty (lower than 504’s 10-year penalty)
• Often a better option for “hairier” deals (i.e., deals with more complexity)

SBA 504 Loan

• Two underwriting processes (one with a lender and one with a Certified Development Company (CDC))
• 25-year fixed-rate option available
• Lower interest rates (currently around 6.2%)
• Blended rate with senior debt often lands in the 7% range
• 10-year declining prepayment penalty (can be a downside if you plan to refinance again soon)

Which SBA Loan is Right for You?

The best loan option depends on your unique situation. Here’s how to decide:

• If you need flexibility and a streamlined approval process → Go with SBA 7(a).
• If securing the lowest possible long-term interest rate is a priority → Consider SBA 504.
• If your boutique motel purchase is on the riskier side (unconventional financials, non-standard ownership structure, etc.) → SBA 7(a) may be easier to get approved.
• If you plan to hold the property long-term and want fixed-rate stability → SBA 504 could be the better choice.

The SBA Refinancing Process

1. Evaluate Eligibility – Ensure your bridge loan qualifies for SBA refinancing.
2. Choose the Right SBA Loan – Compare SBA 7(a) and SBA 504 based on your financial goals.
3. Work with a Preferred Lender – SBA PLP lenders can approve loans faster.
4. Prepare Documentation – Gather financials, business projections, and property details.
5. Underwriting & Approval – If using SBA 504, be prepared for a two-step underwriting process.
6. Close & Fund – Once approved, the loan will replace your existing bridge debt with more favorable terms.

Get Expert Guidance

Refinancing a boutique motel can be a game-changer for your financial future, but navigating the SBA process can be tricky. If you need help determining the best loan for your situation, book a consultation at BookWithBeau.com.

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