New SBA Rules Released: MCA Debt Can't Be Refinanced with SBA Loans

The SBA has announced a significant policy change: Merchant Cash Advance (MCA) debt will no longer be eligible for refinancing through 7(a) SBA loans. This new rule takes effect on June 1, 2025, impacting how small businesses manage their existing debt structures.

In addition to other recent SBA changes in 2025, most notably the reinstatement of SBA Guarantee Fees, this policy shift represents another important adjustment to SBA lending practices.

The New Rule Explicitly States:

"Merchant cash advances and factoring agreements are not eligible for refinancing."

Previously, SBA lenders commonly refinanced expensive MCA debt to make loan repayment more affordable for businesses. This practice made sense from an underwriting perspective - replacing high-cost debt with lower-cost SBA financing typically improved a business's financial health and reduced debt servicing burden.

However, the SBA has identified this refinancing practice as a contributing factor to loan defaults. According to reports, some businesses would pay off MCA debt with SBA loan proceeds only to take on new MCA debt shortly after closing, creating a cycle of debt that increased default risk.

What This Means for Small Business Borrowers

This rule change will have several significant impacts on small businesses with existing MCA debt:

• More challenging approval process for businesses with outstanding MCA obligations
• Banks will need to adjust their underwriting models to account for MCA debt that cannot be refinanced
• Businesses with MCA debt may face more loan declines as lenders reassess debt service capabilities

Refinancing MCA debt has been a lifeline for many businesses looking to improve profitability by escaping the high-cost debt trap. The inability to include MCA debt in refinancing packages will make the path to more affordable financing more challenging for these businesses.

Options for Businesses with MCA Loans

Despite this rule change, there are still pathways to SBA financing for businesses with existing MCA debt:

At SBAScore, we work with numerous SBA lenders, including those who historically haven't refinanced MCA loans and therefore won't be significantly affected by this new rule. Our expertise allows us to match businesses with the right lending partners who can work with their specific financial situations.

We understand the SBA lending landscape and can navigate these new guidelines to help businesses find approval for SBA financing, even with MCA debt on their books. Our approach focuses on identifying the right lender matches based on your specific financial profile and needs.

With numerous SBA rule changes taking effect in 2025, having an experienced SBA loan advisor has never been more important. Contact us today to discuss your options and develop a strategy that works within these new guidelines.

Act Before the Deadline

If your business currently has MCA debt you'd like to refinance through an SBA loan, time is of the essence. Applications submitted before June 1, 2025, will still be eligible under the current rules that allow MCA refinancing.

Start your application now to take advantage of the existing policy before the change takes effect. Our team can help expedite your application.