Can an SBA loan pay off a factoring agreement?
Short answer
No. SOP 50 10 8.1, Appendix 14, Para. A.2 says factoring agreements are not eligible for refinancing. Unlike merchant cash advances, factoring has no conversion path in the SOP.
No. Appendix 14, Paragraph A.2 of SOP 50 10 8.1 says factoring agreements are not eligible for refinancing. The rule is one sentence and has no exceptions.
How this differs from a merchant cash advance
Both were barred under SOP 50 10 8. SOP 50 10 8.1 added a conversion path for Sales-Based Repayment Agreements in Paragraph A.3. It did not add one for factoring.
You also cannot treat a factor payoff as working capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition. Working capital proceeds may not refinance existing debt (Sec. A, Ch. 3, Para. A.2.d.iii).
What it means for other SBA financing
A factoring relationship is not listed as an eligibility bar. But the factor may hold your receivables, and some SBA lines rely on them.
- A Working Capital CAPLine disbursed on a borrowing base needs a first lien on receivables and inventory (App. 19, Para. B.5).
- On a Standard 7(a), the lender decides whether to take a lien on trading assets (App. 19, Para. B.1).
What SBA does not say
SBA's documents do not define factoring or explain how to unwind one. End terms depend on your contract with the factor. Ask the lender how it would treat the factor's claim on your receivables.
Sources
- SOP 50 10 8.1, App. 14, Para. A, General Requirements, Para. A.2 (p. 355)
- SOP 50 10 8.1, Sec. A, Ch. 3, Para. A, Eligible Uses of Proceeds, Para. A.2.d.iii (p. 51)
- SOP 50 10 8.1, App. 19, Paras. B.1 and B.5, Collateral (Para. B begins p. 408)
- SOP 50 10 8 (Technical Updates, effective June 1, 2025), Debt Refinancing
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