In business/commercial lending the purpose of the loan is typically a part of the contract. You can’t say you will use the money to buy equipment and then use i

In business/commercial lending the purpose of the loan is typically a part of the contract. You can’t say you will use the money to buy equipment and then use it to pay off another debt. Also you will have to provide regular (yearly/quarterly) financial statements (typically audited) that include a balance sheet that would list all outstanding debts and assets. As long as you abide by all your existing and future loan covenants you certainly can use loans to pay off debt and many people do. When you can’t it’s due to contracts, not “laws”.