How to Pay Off an MCA With an SBA Under The New Rules Effective Oct 1

The SBA has provided new guidance on its approach toward refinancing merchant cash advances: if you convert one to a term loan, you’ll have to wait a very long time to refinance it with an SBA.

According to the most recent Standard Operating Procedures that go into effect on October 1, “Sales-Based Repayment Agreements (e.g.; Merchant Cash Advances) are only eligible for refinancing if the original agreement has been converted to a term loan, has amortized for at least 24 months, and no additional Agreements have been implemented since the conversion of the prior agreement(s).” If there’s any uncertainty as to what that means, they go a step further and say “If the Sales-Based Repayment Agreement is still active, it is not eligible for refinancing.”

This is slightly different from last year’s SOP that said “merchant cash advances and factoring agreements are not eligible for refinancing.”

The new language was perhaps put in place to close a potential loophole where an MCA is converted to a term loan and then immediately refinanced by an SBA.