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How Does Merchant Cash Advance Consolidation Work?

How Does Merchant Cash Advance Consolidation Work?
Susan Guillory
Susan GuilloryUpdated May 1, 2023
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Businesses that need cash quickly but don’t have strong credit will sometimes turn to an alternative type of funding called a merchant cash advance (MCA). With an MCA, a financing company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee.An MCA can be helpful for covering cash flow shortages or short-term expenses, but if you end up taking out more than one merchant cash advance, you can end up paying different (and potentially high) interest rates and fees for each. Plus, you have to deal with different payment schedules for each.A merchant cash advance consolidation is an option that lets you roll up all of those advance payments into one. Ideally, an MCA consolidation has the potential to cut down on what you’re paying in interest and fees. Here’s what you need to know about this type of consolidation loan.

What Is a Merchant Cash Advance?

Not every business qualifies for a traditional bank loan. Perhaps it hasn’t been in business long enough to be eligible, or maybe it doesn’t meet the credit requirements. That’s when a merchant cash advance may be useful.An MCA is not a loan, but rather an advance on future sales. To determine eligibility, MCA providers may not rely heavily on criteria like time in business and/or credit scores, but instead consider revenues. That can make it easier to get than other types of financing.When you get an MCA, you receive a lump sum payment. Typically, MCAs express the interest they charge as a factor rate (a decimal figure) rather than as a percentage. As your business sells its products or services, repayment is automatically debited daily or weekly until the balance (including factor rate and other fees) is paid off.The downside is that, when it comes to conventional vs. SBA loans vs. merchant cash advances, MCAs tend to have much higher fees and interest than the other two, making them a costly financing option. This is because businesses that don’t qualify for traditional or SBA loans may be viewed as more of a risk to lenders. Typically, lenders try to mitigate that risk by charging borrowers more for the privilege of having access to capital.

What Is Merchant Cash Advance Consolidation?

A business may take out multiple merchant cash advances over time. As a result, the company may end up with multiple repayment schedules and pay different factor rates for each.A merchant cash advance consolidation rolls multiple MCAs into one advance or loan with one repayment schedule and one factor rate. Ideally, that merchant cash advance consolidation loan would have a lower interest rate than the business was paying on the multiple advances.

When to Consider Merchant Cash Advance Consolidation

If your business has taken out multiple merchant cash advances, you may be able to save money with a merchant cash advance consolidation loan. You may also be able to simplify repayment by having a single automatic debit rather than multiple payments. If you run the numbers and it looks like you can save money and avoid inconvenience, it may be a good time to consider a merchant cash advance consolidation. 

What to Consider with Merchant Cash Advance Consolidation

Before applying for a consolidation loan, look at what you’re currently paying in interest and what you’d qualify for with a new loan. There’s probably no sense in taking on a new consolidation loan unless that interest is lower than what you’re currently paying.Also, look at the repayment period and what your payments might be. A shorter repayment period can mean larger payments that you might not be able to afford. And, while a longer repayment period can mean smaller payments, it will likely mean paying more in total interest.Examining the options can help you find one that will work well for you.

Refinancing vs Consolidation

If you’ve heard of business loan refinancing, you may think it’s the same as merchant cash advance consolidation, but these aren’t exactly the same. It’s true that both can potentially lower your interest rate and/or lengthen your payment term. However, when you refinance, you’re replacing one MCA with a new one or with a small business loan. When you opt for an MCA consolidation, you’re rolling multiple MCAs into a new MCA or other type of business loan.

Types of Consolidation Loans

There are a few types of cash advances and loans you can use for consolidation, depending on what you qualify for. Lenders may have different approaches to help you with consolidating your loans. Some will buy out the loan and pay it off directly, while others will lend you the money, after which it’s your responsibility to pay off the loans.

Merchant Cash Advance

If you’ve taken out multiple MCAs, it’s likely because your business doesn’t have great credit and doesn’t qualify for other types of loans. If that’s the case, you might consider a merchant cash advance with bad credit option to consolidate your existing MCAs. Be aware that you will likely have a short repayment period, perhaps between a few months and three years.

Online Lenders

Another consolidation option if you don’t have excellent credit is taking out a consolidation loan with an online lender. Interest rates may be lower than with a merchant cash advance, and repayment terms may be longer.

SBA Loans

SBA loans like the 7(a) program can be used for a number of expenses, if you qualify. Repayment terms can be up to 25 years, and rates on SBA loans are among the lowest of any financing option for businesses.

Traditional Bank Loans

If you’ve improved your credit since taking out the MCAs, you may qualify for a bank loan with lower rates and longer repayment terms.

Examples of Merchant Cash Advance Consolidation Lenders

Below are some lenders that offer merchant cash advance consolidation (they appeared as the first five non-sponsored results in a Google search for “merchant cash advance consolidation lenders” conducted on April 25, 2023).

Shield Funding

Shield funding offers MCA consolidation loans to businesses that have been operating for at least two months with monthly gross revenues of $8,000. To apply, you need to provide two to four months of your recent company receipts. If approved, you can receive funding in one to two business days. 

Strong Capital Funding

Strong Capital Funding offers merchant cash advance consolidation loan options that allow you to replace weekly and daily debits with a single monthly payment. Loans up to $350,000 are available, and a credit score of 675 and two years of business history is generally required.

GUD Capital

GUD Capital offers a range of MCA consolidation options through their large network of lenders, including term loans, lines of credit, alternative loans, and SBA loans. Each may have different requirements for eligibility.

Kanjorski Partners

Kanjorski Partners is another MCA consolidation option to consider. You can consolidate all your MCAs into one loan that you’ll repay over 24 to 36 months. You might be able to lower your monthly debt payments by 50% to 70%.

New York Tribeca Group

The New York Tribeca Group offers business cash advance debt consolidation options, wIth loan amounts up to $5 million. Repayment terms range from four months to two years, and interest rates start at 8%.

The Takeaway

If you feel like you’re drowning because you’re paying too much for multiple merchant cash advances, consolidating might be a solution that could help you lower the interest you pay overall and roll everything up into one monthly payment.Ready to take control of your business finances? Lantern by SoFi can help. You can use our fast online search tool to get a personalized small business loan option in minutes.Let Lantern help you find the right financing solution for your small business.
Photo credit: iStock/recep-bg

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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