The exit door that ten thousand businesses used last year has been locked from the inside.
On June 1, 2025, the Small Business Administration implemented a change to its Standard Operating Procedures that eliminated the single most accessible institutional remedy for businesses carrying MCA debt. SBA 7(a) loans, the primary loan program for American small businesses, can no longer be used to refinance merchant cash advances or factoring agreements. The prohibition extends to SBA Small loans, SBA Express loans, Export Express loans, and International Trade loans. The change was not widely publicized. It arrived in an updated SOP manual, without a press conference, and affected every business owner in the country carrying MCA debt.
If you are one of them, here is what happened, why it happened, and what options remain.
The SBA Discovered It Was Subsidizing a Cycle
For years, business owners used SBA 7(a) loans to replace MCA obligations. The logic was sound: swap an advance with an effective APR of one hundred fifty percent or higher for an SBA-backed loan at ten to thirteen percent. The monthly payment dropped. The business stabilized. The MCA funders were paid off.
The SBA noticed a pattern. After the refinancing closed and the MCA funders received their payoffs, a significant number of borrowers took on new MCA debt. The cycle repeated: new advances, new daily withdrawals, new cash flow crises. Except now, the borrower also carried an SBA loan.
The default rate on SBA loans rose. The SBA identified MCA refinancing as a contributing factor and determined that its loan program was, in effect, providing temporary relief that recycled into the same debt structure. The SBA's response was blunt: remove the option entirely.
Banks that processed these refinancings reported the pattern to the SBA. The borrowers who re-entered the MCA cycle after refinancing did not do so out of recklessness. They did so because the conditions that drove them to MCA funding in the first place (irregular revenue, limited access to traditional credit, urgent cash needs) persisted after the SBA loan closed. The MCA industry was waiting.
Your MCA Debt Now Counts Against You in SBA Underwriting
The prohibition does not merely prevent refinancing. It changes the underwriting calculus. Existing MCA obligations, which previously could be eliminated through SBA proceeds, now remain on the borrower's balance sheet during the application process. The daily ACH withdrawals reduce your demonstrable cash flow. Your debt service coverage ratio, the metric banks use to determine whether you can afford the SBA loan payment, declines.
In practical terms, a business carrying two or three MCAs may be unable to qualify for an SBA loan at all, even for purposes unrelated to refinancing the MCAs. The MCA debt does not merely prevent its own resolution through SBA financing. It prevents the business from accessing SBA financing for any purpose.
This is the compounding effect the SBA did not intend but produced nonetheless. The policy was designed to stop a cycle. It also closed a door.
