"We can't use SBA money to pay off those advances." That one line from underwriting just cut $90,000 out of a $500,000 Standard 7(a) request. The two merchant cash advances you planned to wipe out on closing day are still debiting your account tomorrow morning.
This is general information, not legal or financial advice. Confirm every number against the current SOP and your lender before you sign anything.
The one tip
An active MCA cannot be refinanced with a 7(a) loan. Period.
SOP 50 10 8.1 calls MCAs and point-of-sale advances "Sales-Based Repayment Agreements." Appendix 14 says one is eligible for refinancing only if all three of these are true:
- The original agreement has been converted to a term loan.
- That term loan has amortized for at least 24 months.
- No new advance has been signed since the conversion.
If the advance is still active, it is not eligible. Factoring agreements are never eligible.
Even a converted advance has to clear the general refinance rules. It must have been current for the last 12 months (no payment more than 29 days late). The new 7(a) payment must be at least 10% lower than the payment it replaces. And the lender must keep a copy of the note and itemize every creditor paid $10,000 or more.
Worked example
Your plan: a $500,000 Standard 7(a). $410,000 for equipment and build-out, plus $90,000 to pay off two active MCAs with balances of $55,000 and $35,000.
What underwriting does: strikes the $90,000 from use of proceeds. The loan drops to $410,000. Both advances stay on your debt schedule, and SOP 50 10 8.1 measures coverage on all business debt after the SBA loan, at a 1.15:1 minimum for Standard 7(a). Plan on the lender asking how those daily debits fit into that math.
Now the narrow door. Say one funder converts a $70,000 balance into a 48-month term loan at 18% (an example rate, not a quote). The payment is about $2,056 a month. After 24 on-time payments, about $41,188 is left.
Refinance that $41,188 with a 7(a) over 10 years at 10.5% (an assumption; your rate will differ) and the payment is about $556 a month. The 10% test only needs it under $1,851. That's about 73% below today's payment.
But sign one new advance in month 15 and the door closes. "No additional Agreements" means none.
Do this week
- List every MCA and POS advance: funder, start date, balance, daily or weekly debit, and whether it is still a sales-based agreement or a converted term loan with a note.
- Take any "pay off MCA" line out of your 7(a) use of proceeds unless that advance meets all three tests above. Better to fix it now than have underwriting strike it halfway through the file.
- If a funder offers to convert an advance to a fixed-payment term loan, get the signed note. The 24-month clock runs from the conversion, not the original advance.
- Stop stacking. One new advance after the conversion makes that debt ineligible to refinance.
- Keep every payment inside 29 days. One payment more than 29 days late inside the last 12 months makes that debt ineligible to refinance.
- Run the 10% test yourself: new 7(a) payment divided by the current payment. 0.90 or lower passes.
Your lender can be stricter than SBA on any of this. Ask which rule is SBA's and which is their credit policy.
Sources:
- SBA SOP 50 10 8.1: Appendix 3 (definition of Sales-Based Repayment Agreement); Appendix 14, 7(a) Debt Refinancing Requirements (MCA conversion and 24-month rule, factoring ineligible, current for 12 months, 10 percent payment improvement, documentation); Section B, Ch. 1 (Standard 7(a) debt service coverage of 1.15:1 on all business debt)
- SBA Information Notice 5000-880695 (SOP 50 10 8.1 effective October 1, 2026)
- 13 CFR 120.201 (refinancing a creditor in a position to sustain a loss)
Verified against SOP 50 10 8.1 text: October 7, 2026.