It used to be possible to refinance MCA debt with an SBA loan. That’s not to say it was ever easy to get a U.S. Small Business Administration (SBA) loan to refinance merchant cash advances or other forms of higher-cost alternative financing. But that changed on June 1, 2025, when the SBA’s updated rulebook for lenders, SOP 50 10 8, took effect. It is the most comprehensive change to SBA loan requirements in recent years, and small business owners, hoping to refinance high-interest merchant cash advances, now face an uphill battle. At Delancey Street we negotiate with MCA funders on behalf of business owners, so here are the five changes we think matter most if you have a mountain of debt to pay off and a daily debit schedule you cannot keep.
Underwriting Requirements
The first change is the one that hurts most. Previously, small business owners could use proceeds from SBA loans to refinance high-interest, high-risk merchant cash advances. Now, SBA 7(a) loan proceeds can no longer be used to pay off high-interest financing like MCAs or factoring agreements. The SBA wants its loans used for traditional refinancing of business debt, not high-interest financing. If the plan was to take an SBA loan and wipe out three or four advances with it, that strategy is off the table. Unfortunately, for small business owners who are already behind on an MCA, that change could be devastating. No matter who you talk to in terms of the SBA or banks, they have to follow the same rules. As we tell owners, there’s no magic wand that can make your business debt disappear.
The second change is the minimum score. The SBA raised the minimum Small Business Scoring Service score for 7(a) loans from 155 to 165 on the 0-300 SBSS scale that weighs personal credit, business credit history, time in business and industry risk. Higher scores are more likely to be approved. For a small business, a 10-point jump is significant. What it means is that any application you might have been able to get approved yesterday may not work today. And businesses with high-interest merchant cash advances may struggle to achieve this score.
There is a twist that makes the higher floor harder to get around. Under the new rules, Preferred Lender Program lenders with delegated authority are required to process all eligible 7(a) loans through that channel unless an SBA approval is required or an exception applies. The goal is to streamline the process, and that could mean faster decisions. The catch is that a deal with a score below 165 can’t be sent to the SBA for non-delegated processing, which reduces the number of SBA loans those lenders can do. The fact is, lenders still have to determine if borrowers meet other underwriting requirements outlined in SOP 50 10 8.
Third, the ”credit elsewhere” test is back. Under it, lenders will be expected to scrutinize more closely whether applicants could secure credit from other sources, or from personal resources, before tapping the SBA’s 7(a) program. The personal resources piece is a limited test, but it is there. The SBA wants to see that the people they’re lending to can’t reasonably get a loan from a traditional lender. The upshot is that borrowers may have to endure a more time-consuming underwriting process, including scrutinizing personal finances beyond the business. For companies stretched for time and resources, the hassle factor may start to outweigh the benefits of an SBA loan.
Fourth, the SBA reinstated tax transcript verification. If you have ever applied for a bank loan, you know the drill. Now the paperwork includes a tax transcript verification using Form 4506-C, which lenders use to verify your business tax returns with the IRS before closing. It adds to the stress already felt by struggling business owners. Make sure you’re prepared for a detailed application.
Fifth, closing got stricter. Form 1050, the settlement sheet, is back. Lenders have to work with you to document clearly the intended use of the funds, whether that is equipment, working capital or refinancing debt. And borrowers must sign certifications that what they reported was accurate, and that they will follow the SBA loan terms. While it seems like an inconsequential box-ticking requirement, it means where every dollar goes is written down. Documentation matters. SBA lenders have to be even more obsessive about getting all of the pieces right at closing.
A Stark Picture
Put the five changes together and it paints a stark picture for anyone carrying MCA debt. The higher minimum score floor and the tighter scrutiny make it harder for debt-ridden small business owners to clear the bar and get an SBA loan. If your loan application falls outside the SBA’s updated guidelines, you may find it hard to get approved. And these are not the only changes in SOP 50 10 8; the new rules mix more detailed documentation with more responsibility for lenders. The new rules mean one thing: if you need debt relief, an SBA loan is no longer a ticket to freedom. Thankfully, there are other options for business owners struggling with merchant cash advances and other forms of high-interest, high-risk debt.
Negotiate with Funders
The first thing we tell owners is not to panic. There are ways to get out of advances. First, don’t rush to apply for a second, third or fourth merchant cash advance. It may seem expedient, but when you go back to the well too many times, it can lead to a financial death spiral. Second, plan how to stretch the cash you do have. The most important question any small business owner can ask is where to spend the next dollar. Instead of landing another loan with another lender, you may choose to negotiate with your MCA funders and other business creditors. A settlement is a negotiation to pay back less than what you owe, and close the account. This is not the same as a loan.
That is what we do at Delancey Street. Our senior advisors negotiate with funders and lenders for less than the full balance owed, and we do not sell another loan. This approach doesn’t always work, and if your case can’t be won or a cheaper option exists, we say so on the first call. When bankruptcy, such as Subchapter V, is the better path, we route owners to bankruptcy counsel. Before you enter any negotiations, establish what your obligations are and where you stand contractually. Understand what the funder can and can’t do, and what you can do. Regardless of which path your case takes, you can benefit from a free, confidential consultation with Delancey Street to help you clarify your specific situation and chart your path forward.
