- 1Active MCAs are not eligible for SBA refinancing under the SOP effective October 1.
- 2A converted MCA must amortize at least 24 months, with no new agreements since conversion.
- 3Last year's SOP said MCAs and factoring agreements were not eligible at all.
The SBA has changed how its loans can be used to pay off merchant cash advances: a business that converts an MCA to a term loan now faces a long wait before an SBA refinance is possible.
The agency's most recent Standard Operating Procedures take effect October 1. They say sales-based repayment agreements, including MCAs, qualify for refinancing only when three conditions are met:
- The original agreement has been converted to a term loan.
- The converted loan has amortized for at least 24 months.
- No additional agreements have been put in place since the conversion of the earlier agreement or agreements.
The SOP adds that "If the Sales-Based Repayment Agreement is still active, it is not eligible for refinancing."
How it differs from last year
Last year's SOP took a flatter line, stating that merchant cash advances and factoring agreements were not eligible for refinancing. The new text opens a path for MCAs, but only after conversion and a long amortization period.
The added wording may be aimed at closing a potential loophole, in which an MCA is converted into a term loan and then refinanced by an SBA lender right away.
Source reporting: deBanked.
