SBA rules · Updated October 2026
Can You Use an SBA Loan to Pay Off Merchant Cash Advances? The October 2026 Answer
For sixteen months the answer was a flat no. Under SOP 50 10 8, in force since June 1, 2025, merchant cash advances and factoring agreements could not be refinanced with a 7(a) loan at all. SOP 50 10 8.1, which applies to applications the SBA receives on or after October 1, 2026, opens a path, but a narrow one with a two-year wait built in. This guide explains exactly what qualifies now, what still does not, how to get from an active advance to an SBA-eligible position, and what to do in the meantime.
Can an SBA Loan Refinance a Merchant Cash Advance in 2026?
Only indirectly. Under SOP 50 10 8.1, a sales-based repayment agreement (the SBA’s term for a merchant cash advance) is eligible for 7(a) refinancing only if the original agreement has already been converted into a term loan, that term loan has amortized for at least 24 months, and no additional sales-based agreements have been taken on since the conversion. An advance that is still active, still being repaid daily or weekly from sales, is not eligible, and neither is an active factoring agreement. In practice the SBA has created a two-step route: term out the advances first with a non-SBA product, pay that loan as agreed for two years with no new advances, then apply for the SBA refinance.
What Changed on October 1, 2026
The June 2025 rulebook (SOP 50 10 8) listed merchant cash advances and factoring agreements as debt that simply could not be refinanced with SBA money. Lenders read that literally, and thousands of owners who had taken an advance to bridge a gap found the SBA door closed to them, including for unrelated purposes, because an open advance also fails the SBA’s cash-flow coverage test.
SOP 50 10 8.1 replaces the flat ban with a conditional rule. The SBA’s language, as reported by the trade press and lender training providers, says a sales-based repayment agreement is eligible for refinancing only if it “has been converted to a term loan,” that loan “has amortized for at least 24 months,” and “no additional agreements have been implemented since the conversion.” If the agreement is still active, “it is not eligible for refinancing.”
| SOP 50 10 8 (June 1, 2025 to September 30, 2026) | SOP 50 10 8.1 (applications received from October 1, 2026) | |
|---|---|---|
| Active merchant cash advance | Not eligible for refinancing | Not eligible for refinancing |
| MCA converted to a term loan | Not eligible | Eligible after 24 months of amortization with no new advances |
| Factoring agreement | Not eligible | Not addressed by the new language; treat as not eligible |
| New advances taken after conversion | n/a | Disqualifies the refinance |
| Documentation | n/a | Conversion agreement, 24-month payment history, confirmation of no new sales-based agreements |
Two things the new rule does not do. It does not let an SBA lender pay off an advance that is still pulling daily debits, and it does not shorten the SBA’s usual refinancing tests: the business still has to show the debt-service coverage the lender requires, a payment history on the loan being refinanced, and in most cases a meaningful improvement in the monthly payment.
The Two-Step Route the SBA Has Created
Read together, the conditions describe one path. An owner with one or more active advances has to term them out first, outside the SBA, then wait.
- Step 1: convert the advances into a term loan. That means a non-SBA product that pays the funders off in full and replaces the daily or weekly remittances with a fixed monthly or weekly payment over 12 to 36 months. A reverse consolidation or a term-loan buyout does this; a settlement for less than the balance does not, because the SBA wants a conversion, not a default. Get a zero-balance payoff letter from every funder.
- Step 2: pay the term loan as agreed for 24 months. Every payment on time, documented in the bank statements the SBA lender will read.
- Step 3: take no new sales-based financing in that window. A single new advance, even a small one, resets the clock and disqualifies the refinance.
- Step 4: apply for the 7(a) refinance after month 24. With the conversion agreement, the 24-month payment history and current financials showing coverage of the proposed SBA payment.
The obvious question is why the SBA built in a two-year wait. The trade press reads it as closing a loophole: without the seasoning requirement, a funder could convert an advance to a “term loan” on Monday and submit it for SBA refinancing on Tuesday. Whatever the reason, the wait is now part of the rule, and the realistic planning horizon for an owner with active advances is two to three years from today to an SBA payoff.
What to Do With Active Advances in the Meantime
Most owners asking this question are not two years away from a problem; they are two weeks away from one. The useful comparison is between the ways to term out an advance today, since all of them are now also the first step toward an eventual SBA refinance.
| Option | What it does | Who it fits | SBA path after |
|---|---|---|---|
| Reverse consolidation | A new funder advances enough to cover the existing remittances, which you pay back weekly; existing advances run off on schedule | Two or more open positions, deposits still healthy | Weak: it is itself a sales-based agreement, so the clock starts only when it is later converted to a term loan |
| Term-loan buyout | A term lender pays the funders off in full; you repay monthly or weekly over 1 to 3 years | 12+ months in business, clean recent statements, credit 600+ | Strong: this is the “conversion to a term loan” the SBA now recognizes |
| Reconciliation with the funder | The daily amount is adjusted down to actual revenue; the term extends | Revenue dropped; owner can show it in statements | None directly, but it avoids a default that would close the SBA route for years |
| Bank or credit-union term loan | Pays off the advances at bank pricing | Strong financials, often collateral, 2+ years of returns | Strong: same as a buyout, usually cheaper, rarely available to an owner with open advances |
For an owner whose end goal is an SBA loan, the term-loan buyout is the one that starts the 24-month clock. A reverse consolidation solves the cash-flow emergency but does not count as a conversion until it is itself replaced by a term loan. A specialist should run both numbers against your statements before you choose.
The Other SBA Tests an Advance Has to Clear
Even a properly converted and seasoned advance is refinanced only if the file passes the same tests as any other 7(a) refinance. Under SOP 50 10 8.1 those include:
- Debt-service coverage. Lenders measure historical cash flow (EBITDA on the last fiscal year or a two-year average) against all debt service after the new loan. Projections cannot be used to meet the floor. For most working-capital refinances lenders look for 1.15x or better; acquisitions require 1.25x.
- Payment history on the debt being refinanced. The lender needs a transcript, typically 36 months where available, showing how the loan was paid. Late payments have to be explained and can disqualify the file.
- Payment improvement. The usual requirement that the SBA loan improves the borrower’s installment payment by at least 10% still applies to most refinances, with limited exceptions.
- Eligibility of the business and its owners. Since March 1, 2026, all direct and indirect owners must be U.S. citizens or nationals; see what changed for green card holders.
- Personal financial statement within 90 days of the application (down from 120) for every 20%+ owner and guarantor.
The second test is the one that catches converted advances most often. A term loan that was paid late in months three and four is a term loan with a blemished transcript, and the SBA lender will see it.
What the Federal Reserve Data Says About Who Needs This
The Federal Reserve’s 2026 Report on Employer Firms (fielded September to November 2025, 6,525 firms) puts the demand in context. Thirty-eight percent of employer firms applied for a loan, line of credit or merchant cash advance in the prior twelve months, and 8% applied specifically for an advance. Twenty-nine percent of applicants went to online lenders, up from 17% in 2020. Among businesses that borrowed online, 60% said the actual cost was higher than they expected, against 37% at small banks and 32% at large banks.
That last figure is the whole case for the SBA’s new path, and for the two-year wait it imposes. The owners most likely to need an exit from an advance are the ones who did not understand its cost going in. Two years of on-time term-loan payments is the SBA’s way of making sure the next loan is one they can carry.
How RAN Funding Fits In
We do not make SBA loans or any other loan. What we do is read the statements, tell you honestly whether a buyout or a reverse consolidation is possible with the funders in our network, and, if it is, place the file with the one that fits. For an owner planning toward an SBA refinance, we structure the first step as a term loan whenever the file supports it, because that is the version the SBA will recognize two years from now. Our network places SBA loans up to $5 million through SBA lenders and non-SBA products up to $2 million.
Common Questions
Can I get an SBA loan while I still have an active merchant cash advance?
For a purpose other than paying it off, rarely: the advance’s daily or weekly remittances usually push debt-service coverage below the lender’s floor. To pay it off, no: SOP 50 10 8.1 says an active sales-based repayment agreement is not eligible for refinancing.
Does a reverse consolidation count as converting my MCA to a term loan?
No. A reverse consolidation is itself a sales-based agreement. It solves the cash-flow problem but the SBA’s 24-month clock starts only when the advances are replaced by a true term loan.
What if I took a new advance during the 24 months?
The refinance is disqualified. The rule requires that no additional sales-based agreements were implemented after the conversion.
Does the new rule apply to loans already in process?
It applies to applications the SBA receives on or after October 1, 2026. Applications received through September 30, 2026 stay under SOP 50 10 8, where MCA refinancing was not permitted at all.
Can factoring be refinanced with an SBA loan now?
The October 2026 language addresses sales-based repayment agreements. Factoring was explicitly excluded under the prior SOP and is not clearly covered by the new path; most lenders are treating active factoring as ineligible.
Is RAN Funding an SBA lender?
No. RAN Funding is a business financing broker. We present SBA files to the SBA lenders in our network and non-SBA files to the other funders that fit, and we are paid by the funding partner when a deal closes. The lender makes the credit decision.
Sources
- SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026) — U.S. Small Business Administration
- SBA SOP 50 10 8.1: What Changed on October 1, 2026 — StatementsReady, 2026
- How to Pay Off an MCA With an SBA Under the New Rules Effective Oct 1 — deBanked, September 23, 2026
- New SBA Rules Open a Path to Refinancing Merchant Cash Advances — Forbes, October 1, 2026
- 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey — Federal Reserve Banks, 2026
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