When it comes to Consolidating Merchant Cash Advance (MCA) debt, you have 3 options. We have seen all sorts of businesses throughout the years, all with different amounts and positions of MCA debt. Each situation is different, but there is one constant trait; every business owner wants to get out of MCA debt! Here are the options that you have based on likelihood of approval and program quality, all of which don’t include debt restructuring (defaulting on the MCA funder).
- The Least Likely Option
Why can’t 1 single MCA company come in and buy out all your current MCA debt? Hypothetically, this funder would pay off all your MCA debt, but you most likely wouldn’t be able to use any of the proceeds for the business. This coupled with the fact that since you took out other positions in the past, you would be a risky investment, since you could get more MCAs after a refinance. This would put the MCA refinance funder in jeopardy. Also, once the MCAs would be paid off, these funders would attempt to give you more money. All of these reasons are why you don’t see this offered in the alternative lending space. You could find a funder that would pay off existing MCA debt, but the general rule of thumb is that you would have to net more than 50% of the total new loan size, after paying off other MCAs. This means if you were approved for $100,000 and your MCA debt exceeded $50,000, the deal would not be approved.
- The Most Likely Option
A Reverse Consolidation is a program that is designed to extend your payments for all of your current MCAs. By extending the term and by capitalizing the business to pay off the scheduled payments in lockstep, you could see cash flow savings of up to 50%. If you had multiple MCAs with multiple daily payments, a Reverse Consolidation funder would deposit funds into your bank account for the total amount of all your MCA payment obligations that week. Then, you would be required to pay a smaller amount for these disbursements, usually a payment size of 30% to 50% less. This tactic frees up much needed cash flow for the business. As the MCA debt falls off naturally, the deposit weekly lowers, until all the MCAs are paid off. Then there would just be a small payment to finish the Reverse Consolidation.
- The Best Option
A business revolving line of credit can be used to pay off MCA debt. Although this program is reserved for qualified near prime borrowers, most line of credit applicants have existing MCAs. Since a line of credit has low interest rates of anywhere from 8% to 4.5% annually, using funds from a line of credit to pay off high MCA debt is a great way to save cash flow to MCA short term payments. The requirements for a Line of Credit in your State can be found here at LineofCreditDepot.com.
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