If your business has a merchant cash advance (MCA) or anything that smells like one, the Small Business Administration just made your life a whole lot harder.
As of June 1, 2025, the SBA released a technical update to its Standard Operating Procedures (SOP 50 10 8), and the language is shockingly blunt for a government document:
Merchant cash advances and similar products are, by definition, not considered to have been used for a “sound business purpose.”
Let that sink in.
It is now official U.S. government policy that MCAs—and even “MCA-like” fintech loans—are inherently unsound. Not because you used the money poorly, but because the structure of the debt itself is disqualifying.
? What Exactly Changed?
The SOP now states:
“SBA-guaranteed loan proceeds may not be used to refinance any debt that was not used for a sound business purpose, such as merchant cash advances, cash flow financing products, or similar financing that relies on future receipts or receivables.”
That line drew widespread attention because it leaves no wiggle room. As Byline Bank explains, this eliminates “merchant cash advances and factoring agreements” from SBA loan eligibility entirely.
Even deBanked, a publication that covers MCA providers, notes the new SOP “explicitly says” MCAs and similar receivables-based products are banned from SBA refinancing.
What Counts as “MCA-Like”?
These lenders are frequently mentioned in conversations around short-term working capital products that share DNA with merchant cash advances:
While not all of these companies offer true merchant cash advances, many of their products follow a similar structure: short-term repayment (typically 6 to 24 months), daily or weekly automated payments, and pricing based on factor rates instead of amortized interest. Even when labeled “term loans,” these products often walk and talk like MCAs—just dressed up in fintech branding.
The SBA has made clear that form doesn’t matter—function does. If the repayment is tethered to future revenue and structured in a way that mirrors an MCA, it’s now off-limits for SBA refinancing.
The Real-World Impact
Let’s say you run a profitable business doing $1.2 million annually with solid credit. You took a $75K working capital advance from a fintech lender to manage payroll and bridge receivables. Now you want an SBA 7(a) loan to expand.
Too bad. That advance just blew your shot.
Even if you swear you won’t use SBA proceeds to pay it off—even if the funds were used responsibly—the SBA won’t lend while that kind of debt is on your books. The reason? It’s not just about proceeds. The SBA considers high-frequency, receivables-based debt a red flag for repayment risk.
Can You Get Around It?
Only one way: pay it off first—with your own funds or a non-SBA loan—and then wait long enough to prove you’re still financially stable.
But even then, underwriters will ask:
- How recently was it paid off?
- Have you taken multiple advances before?
- Are you stacking short-term debt?
In short: they’re looking for patterns. And they don’t like what MCAs reveal about how you manage your cash flow.
What Should Business Owners Do?
- Think twice before using MCA-like products—even if you’re a strong operator.
Many responsible business owners have taken MCAs with good intentions—and wound up on a treadmill they couldn’t get off. What started as a bridge became a recurring crutch. Now that debt structure can lock you out of SBA financing altogether. - If you already have one, pay it off before applying for an SBA loan. The faster, the better.
- Understand that “MCA-like” matters.
Don’t be fooled by branding. If the repayment is frequent and tied to revenue, it probably disqualifies you—even if it’s technically a “loan.”
What About Embedded Finance Products Like Square Capital, Shopify Capital, and PayPal Working Capital?
These products have become enormously popular over the last few years. So much so that capital providers are now baked directly into major platforms:
- Square Capital for point-of-sale users
- Shopify Capital for e-commerce merchants
- PayPal Working Capital for online sellers
- Toast Capital for restaurants
- eBay Seller Capital (via LendingPoint)
- Walmart Marketplace Financing
They’re easy. Convenient. Often cheaper than traditional MCAs.
But let’s be clear: they’re still MCAs in structure.
Fixed repayment amounts. Daily or weekly deductions based on sales. No interest rate. No amortization. No prepay savings.
And yes—they’re all disqualified under the new SOP.
Even if you’re not using SBA funds to pay them off, just having this kind of debt active can disqualify your application outright.
As TheLeadsWarehouse put it, this rule has created massive uncertainty in the embedded lending world—and will likely lead platforms to retool their offerings.
Final Thought from Diogenes
Brokers will still tell you things like:
“Once you’re stable again, we’ll roll this into an SBA loan.”
No, you won’t.
Not anymore. Not under these rules.
And if your broker is pretending otherwise—they’re either clueless or lying to keep their commissions flowing.
✅ Want the Truth Instead?
That’s why we built Diogenes—to give small business owners honest, transparent guidance without the spin.
No brokers. No BS. Just the truth.