Content related to SBA 7(a) loans.
SBA loans were commonly used to directly refinance MCA debt — but since June 2025, this is no longer directly allowable with SBA-guaranteed funding.
The SBA's latest Standard Operating Procedure (SOP) includes a significant change for small business borrowers seeking to refinance high-cost debt:
"Merchant cash advances and factoring agreements are not eligible for refinancing."
Historically, SBA lenders often used SBA loan proceeds to pay off merchant cash advances when doing so improved the borrower's overall financial position. From an underwriting standpoint, replacing expensive short-term debt with lower-cost SBA financing typically reduced monthly debt obligations, improved cash flow, and increased the likelihood that the business could successfully repay its new SBA loan.
While this strategy frequently benefited borrowers, it also created unintended consequences. As SBA loan default rates increased, the SBA examined contributing factors. One issue: businesses that used SBA proceeds to pay off MCA balances, only to obtain new merchant cash advances shortly after closing — ending up with both the SBA loan and new MCA obligations, increasing strain and contributing to future defaults.
For many businesses, refinancing MCA debt had been one of the most effective ways to improve cash flow. Eliminating multiple daily or weekly MCA payments can significantly reduce financial pressure and provide breathing room for operations, payroll, inventory, and growth.
The new rule does not prevent businesses with MCA debt from qualifying for an SBA loan. However, because MCA balances can no longer be paid off directly with SBA proceeds, lenders must evaluate the business while those payment obligations remain in place. This can substantially impact underwriting — particularly when calculating Debt Service Coverage Ratio (DSCR) and other cash-flow metrics.
Some businesses that may have previously qualified under an MCA refinance scenario may find approval more challenging today. Lenders must assess whether the business can support both its existing MCA obligations and the proposed SBA loan.
Yes — businesses can still receive an SBA loan if they are paying an MCA, but they must pass debt servicing requirements to be approved. With short-term advances, this is challenging. It is highly advised to check your DSCR if you are currently paying MCAs and are interested in an SBA loan.
The SBA lender is not concerned with the MCA balance alone. The issue is the monthly payment obligation. Because MCA repayment terms are so short, the monthly debt service is significantly higher than comparable debt — which can negatively impact DSCR.
During the pre-underwriting phase, lenders will require a debt schedule, analyze bank statements, and perform a UCC search on your business to verify any liens. Most MCA companies file a UCC-1 financing statement against business assets and receivables, and SBA lenders will review these filings during underwriting. Depending on the lender and program, existing UCC filings may need to be subordinated, released, or addressed before closing. If you have current MCA loans, they must be disclosed during the application process.
Besides an insufficient DSCR, here are common decline reasons for businesses with MCA debt:
Paying off MCA obligations can significantly improve your DSCR. Most SBA lenders require DSCR to exceed a minimum threshold, meaning the business must generate enough cash flow to comfortably cover debt obligations. Although paying off your MCA loans would increase your chances of approval, the application will still be contingent on credit scores (business and personal) and other underwriting criteria.
To improve DSCR for applicants currently paying MCA, sometimes other non-MCA debt is added as potentially refinanceable — done specifically when DSCR needs improvement.
While SBA loans can no longer be used to directly refinance MCA obligations, they remain one of the most effective long-term financing tools for businesses seeking to improve cash flow and reduce dependence on high-cost short-term funding. The key is understanding how existing MCA obligations affect underwriting and identifying the right SBA program for your situation.
Note: there are SBA-guaranteed line of credit programs where DSCR is not used as a qualifying metric — and these programs don't require outstanding UCCs to be removed or subordinated. These may be worth exploring if DSCR is your primary obstacle.
