The U.S. Small Business Administration (SBA) has released a significant update that will directly affect small business financing strategies moving forward. As of June 1, 2025, the SBA no longer permits the refinancing of Merchant Cash Advance (MCA) or factoring debt through its loan programs, including 7(a) and 504 loans. In the past, SBA loans were occasionally used to refinance these alternative financing solutions.
The SBA has now restricted such refinances to, among other things:
- -Preserve program integrity;
- -Encourage sound borrowing practices; and
- -Prevent government-backed funds from covering non-traditional debts.
What happens after June 1, 2025?
- -MCAs and Factoring Agreements are now excluded from the SBA’s list of eligible debts that can be refinanced.
- -Any SBA loan applications intended to refinance these types of debts will be declined or deemed ineligible under the new policy.
How will this rule affect Factors?
This move places new limitations on businesses who were relying on SBA loans as an exit from factoring arrangements. As a result, Factors should expect:
- -Longer client retention periods, as refinancing options narrow;
- -A potential need for more creative repayment solutions; and
- -Increased demand for bridge products or non-SBA consolidation tools.
While some may view this as a regulatory tightening, it could also create opportunities for factoring companies to provide structured solutions that help clients transition gradually—without relying on SBA funding. In our opinion, this represents an opportunity for Factors to: (i) extend more structured, multi-step repayment or transition strategies; (ii) strengthen long-term client relationships; and (iii) reassess referral relationships with lenders who may no longer serve as a refinance path. Factors should also review active and pending clients for cases in which SBA refinance is in process or expected to get ahead of any potential issues that may arise.
Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.
