SBA Loans as an MCA Exit Strategy

Welcome to Delancey Street. This article is about using SBA loans as an exit strategy for MCA debt.

SBA loan pitch for MCA debt

If you’re living under the pressure of daily ACH payments, someone has probably told you the fix is simple. It’s probably the broker who sold you the MCAs in the first place, and that is getting an SBA loan to pay off your advances and now moving on with a 10-year term at a single-digit interest rate. That pitch used to be plausible. Today, it’s mostly not. The rules have changed and the rule is specific. Here’s how the mechanism actually works now, where the openings are, and what order you have to do things in.

SBA refinance rules changed in 2025

So first and foremost, the SBA rewrote its lending playbook in 2025. Inside that rewrite is a plain statement which matters enormously to anyone who has multiple MCAs. The statement is that merchant cash advances and factoring agreements are not eligible to be refinanced with SBA 7(a) loan proceeds. This is an eligibility rule, not a credit standard. It does not matter how strong your revenue is or how much your banker likes you.

If the use of proceeds is pay off an active MCA, that deal is dead. Period. The structural reason is the same reason advances are expensive in the first place, and MCA is not legally a loan. It’s a purchase of future receivables. SBA refinance rules are built around debt with concepts like payments, maturity, and payment history, and advances have none of those in the legal sense.

Additional commentary from SBA lenders has provided context. Owners were using guaranteed proceeds to clear advances, but then they were taking new advances weeks later, which pushed losses onto the SBA guarantee. Having said that, a narrow door is still open.

Converted qualifying term financing

The follow-up provision, which was pushed live on October 1st, 2025, adds a path for debt that originated as merchant cash advance once it has been converted into qualifying term financing. Having said that, active advances and factoring agreements remain ineligible. The character of the obligation at the moment you apply is what controls what happens next. An advance sitting on your bank statements taking daily debits is not eligible for SBA financing, but a conventional term note that happens to have started as an advance may be refinancable if it now looks and behaves like real term debt.

This is not a loophole which you can run in 30 days or 60 days. It’s a two-step process with a long timeline, and the ordinary refinance tests still apply on top of it. Under the SBA’s general debt refinance standards, the debt must have been current for at least a period of 12 months, and the new loan generally has to reduce the installment payment by at least 10 percent, unless the debt qualifies under the unreasonable terms category, which bypasses that test altogether. The standards come from the summaries of the SOP by SBA lenders and lending attorneys. Before you build a plan around taking an SBA to get out of your MCA debt, it’s important to ask your lender to point to the section text in the current SOP. The versions keep moving year over year.

Advances sink SBA file

Now, it’s important to understand why advances will sink your file even when you are not refinancing them. Suppose you give up on paying the MCA with SBA money and just apply for a normal working capital or acquisition SBA loan. Those advances are still going to hurt you in a few different ways.

Cash flow liens and judgment

First things first is cash flow. Lenders are going to look at the size of your loan based on your ability to service the debt out of your historical earnings and bank statements. If daily and weekly payments are visible on every page of your bank statements, that means your cash flow is suffering. It also reduces the coverage number directly, and they signal distress even when the math equation looks clean. No one likes lending money to someone who borrows MCAs, period.

The second thing is liens. Most SBA funders will routinely file blanket UCC-1 filings on all business assets. Often SBA lenders cannot take the position they need while there is a stack of blanket UCC filings sitting ahead of them. Those filings have to be either terminated or subordinated. Funders that are still owed money, having said that, rarely subordinate their UCC lien.

The third thing to consider is a judgment. As of March 1st, 2026, the SBA no longer requires lenders to use the FICO score to pre-screen small SBA loans, and instead look at commercial credit analysis consistent with similar non-guaranteed loans. That hurts you in two ways. One, there is no automatic score cutoff anymore, and therefore there is more human discretion. And the issue is discretion is not going to be generous towards a business with four positions and negative balance days.

Sequential SBA exit order

So here’s what we can actually do for you. From where we sit at Delancey Street, we worked on the debt relief side of these files, and the businesses that eventually get SBA money almost always do it in this order. First, we resolve the advances first. We use tactics like settlement, negotiated payoff, restructure, or conversion into a real-term obligation. The goal is to get the daily debits off the account and the balances to a number you can actually one day get rid of.

Second thing is clear the record. Get written UCC terminations, get any COJs or filed judgments satisfied and released, and give you a clean bill of health. If you’ve got a satisfied judgment but it’s still showing as live, this can be a problem in SBA underwriting.

The next thing that we try to do is get you 12 months of clean statements. The idea is no new positions, no overdrafts, ideally a tax return that shows profits. SBA lenders underwrite history, and history is what you are building during the stage. The goal then is to apply with the use of proceeds to stand on its own. The goal is new equipment, new real estate, and acquisition or documented working capital, not let me clean up my advances.

Real estate and positions

Another fact that can change the answer is whether you own real estate or not. An owner-occupied property can support a 504 or 7(a) real estate loan, and the payment relief from refinancing eligible mortgage debt can free up cash that you can use on advances yourself. What you cannot do is direct SBA proceeds at the advance. Another variable to think about is the number and size of positions you have.

One advance with six months left is a cash flow issue. Five stacked positions is a solvency problem, and solvency problems do not get solved by borrowing more money either from an MCA lender or from an SBA lender.

SBA loan reward for restructuring

Bottom line is an SBA is not free money. It carries a personal guarantee and it will likely be secured by business assets and in many structures, equity in your home. It’s likely you’ll be converting expensive unsecured MCA debt into cheaper debt, but that cheaper debt is secured against things you cannot afford to lose, like your home. For some people, that is the right trade at a lower cost of capital. But now you’re transferring risk onto your personal balance sheet, and defaulting on federal debt will bring collection tools against you that private funders don’t have.

What this really adds up to is that the SBA exit is real, but it is sequential, not simultaneous. You cannot borrow your way out of an active advance with a guaranteed loan, because eligibility rules from the SBA stop you at the door. You can get out of the advance by other means, such as converting it or extinguishing it, cleaning up the lien record, providing 12 months of ordinary operations, and then qualifying for an SBA loan on the merits. So bottom line is treat the SBA loan as the reward for finishing the restructuring, not the tool for doing it. Any broker who tells you otherwise is either quoting you outdated rules or is misleading you.

If you are interested in restructuring or settling for less, please reach out to Delancey Street today. Thank you.