The short answer. An active merchant cash advance still cannot be refinanced with an SBA 7(a) loan. Debt that began as an advance can be, but only after the advance has been converted to a term loan, that term loan has amortized for at least 24 months, and the business has taken no new advances since the conversion. The rule applies to 7(a) loans that receive an SBA loan number on or after October 1, 2026.
What changed on October 1, 2026
Under SOP 50 10 8, effective June 1, 2025, the rule was absolute: merchant cash advances and factoring agreements were not eligible for refinancing with SBA proceeds. Operators carrying advance positions had no direct route to an SBA facility.
SOP 50 10 8.1, published September 25, 2026 and effective October 1, 2026, rewrites that rule. Appendix 14, which now holds every 7(a) debt refinancing requirement in one place, says:
"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 the Sales-Based Repayment Agreement is still active, it is not eligible for refinancing."
The SOP defines a Sales-Based Repayment Agreement as a funding agreement where a business receives a cash advance in exchange for a percentage of its future sales. That covers traditional merchant cash advances and point-of-sale advances repaid from card or platform receipts.
Factoring did not get the same treatment. The same appendix states that factoring agreements are not eligible for refinancing.
Timing turns on the SBA loan number, not the application date. A loan that received its SBA loan number on or before September 30, 2026 stays under SOP 50 10 8.
The three conditions, in plain terms
1. The advance has been converted to a term loan
A sales-based remittance, where a fixed percentage of daily or weekly receipts goes to the funder, has to be replaced by a term loan with a scheduled, amortizing payment. Until that happens, the advance is "still active" and the door is closed.
2. The term loan has amortized for at least 24 months
Two years of scheduled payments on the converted loan. This is the condition that changes planning the most. Operators who were told twelve months of clean history would open the SBA conversation should now plan on twenty-four for any debt that started as an advance.
3. No new advances since the conversion
One new sales-based agreement after the conversion breaks the condition. In practice this means the conversion only works if the business can run on its own cash flow, or on conventional capital, for the full two years. If a business is likely to need another advance in that window, the plan has to solve for that first.
The rules that apply to every SBA refinance
Meeting the three conditions makes the debt eligible to be considered. It still has to pass the general refinancing requirements in Appendix 14:
- Twelve months current. The debt being refinanced must be, and must have been, current for at least the last 12 months, or the life of the loan if shorter. "Current" means no required payment has gone more than 29 days unpaid.
- Ten percent payment improvement. The new installment must be at least 10% lower than the existing installments, measured in aggregate across all the debt being refinanced at the same time.
- No shifting a loss to SBA. SBA proceeds may not pay a creditor in a position to sustain a loss. The lender has to document why the debt was incurred, why it is being restructured, and how the new loan improves the business's financial condition.
The twelve-month test and the twenty-four-month amortization condition run side by side. For debt that started as an advance, the longer one governs the timeline.
What the rule does not settle
The SOP refers to the "original agreement" being converted to a term loan. It does not say whether a term loan from a different lender, used to retire one or more advances, counts as that conversion, or when the 24-month clock starts in that case. Lenders will read that language for themselves, and readings may differ until SBA issues further guidance.
SCS plans to the conservative reading: treat the term loan that retires the advance as the conversion, start the 24-month clock on its first scheduled payment, take no new advances after it, and keep every payment current from day one. A sequence built that way qualifies under the strict reading and loses nothing under a looser one.
The sequence, rebuilt for 8.1
- Stabilize. If the business needs working capital now, Bridge Liquidity is structured with the exit in mind, not stacked on top of existing positions.
- Convert. Move the advance position into an amortizing term facility with a payment the business can carry from operating cash flow.
- Season for 24 months. Scheduled payments, no late payments, and no new sales-based agreements. This is the stretch where most graduation plans fail, so it is where SCS stays closest.
- Refinance into SBA 7(a). Size the SBA loan so the new installment is at least 10% below the term payment it replaces, with a 10-year term for working capital debt or up to 25 years where real estate is involved.
Under last year's rule, this path ran through a conventional facility and twelve months of seasoning. Under 8.1, it is two years for debt that began as an advance. Plan the calendar accordingly.
What an SBA loan can do in the meantime
A business that is still inside the 24-month window may qualify for an SBA loan for other eligible purposes, such as equipment, real estate, or new working capital. Two limits matter. SBA working capital proceeds may not be used to refinance existing debt, and nothing in the SOP allows SBA proceeds to pay off an active advance. Better operating cash flow can help a business retire advances from its own revenue, which is a different thing and the only version SCS will describe.
Where to start
The first question is not whether you qualify for SBA today. It is which of the three conditions you already meet and how many months stand between your current structure and the refinance. That is what a Capital Assessment maps, at no cost and with no obligation.
See SCS briefs first when you search Google. Add SCS as a preferred source on Google →
This brief summarizes SBA SOP 50 10 8.1, Lender and Development Company Loan Programs, effective October 1, 2026, available from the U.S. Small Business Administration. It is general information, not legal or financial advice. SCS is a capital advisory and placement firm, not a lender. Eligibility is determined by the lender and by the SBA Standard Operating Procedure in force when the loan receives its SBA loan number. Program rules change.