Merchant cash advance consolidation: How it works
Sat | May 2022
Merchant cash advances (also known as MCA's) are a type of alternative financing business owners use to get capital quickly, without the hassles of a traditional loan. However, suppose you are in a position where you have more than one MCA that you are repaying. In that case, it can feel overwhelming and distracting from the business to manage your cash flow around them.
Getting a merchant cash advance consolidation can be the potential answer to your problems. If approved, the funder would "buy out" your other MCAs and consolidate them into a single MCA. Though your cost of capital may not be less, you could potentially cut down the number of your daily or weekly repayments. You may improve your cash flow and your ability to manage it. In this article, we will discuss what MCA consolidation is, how it works, and whether it is a good option for your business.
Understanding merchant cash advance (MCA) consolidation
A merchant cash advance consolidation is a form of financing where you seek to join multiple MCAs. In other words, one MCA funder will buy out your other MCAs, which can benefit you because you only have to worry about a single payment.
As a business owner, taking multiple merchant cash advances can mean getting multiple repayment schedules and paying different factor rates. By consolidating these merchant cash advances, you could have a lower factor rate than you were paying on multiple advances or at least with one payment.
An MCA consolidation may allow you to free up cash flow, increase ease in your repayments, and reduce the number of funders you owe. Companies that offer MCA consolidation do this by buying all your existing advances and putting them into one single MCA, hopefully under a more palatable repayment schedule that will allow you to manage your business how you need to.
Key considerations for MCA consolidation
Before moving forward, you should run the numbers to ensure this will benefit your business. To do this, check what you currently pay in factor and daily/weekly payments versus what you are offered by the funder you are working with. For instance, there's no benefit in getting a consolidation MCA if the repayments and factor rates are higher than what you are currently paying.
Additionally, you should check for the repayment periods and the approximate amount of the payments. If you get a shorter repayment period, you'll have to make more significant payments, which might be more difficult for your business. On the other hand, a more extended period would offer smaller payments, which may be what you are looking for.
Ultimately, the funder will decide whether they are willing to buy out your other MCAs, the term length, and the capital's cost. Still, thinking through and understanding what you are getting yourself into is always good. The next step is understanding the usual requirements.
Eligibility and requirements for MCA consolidation
The factors at play for the funder to consider "buying out" your other MCA's will be:
The balance: The balance you have with these funders. i.e., suppose you have two positions and still owe 90% of them. In that case, your probability of getting a funder to give you an offer is very low.
Account health: Make sure you do not default on your funders. If you do, the probability of getting funded by another MCA company is close to zero.
Business health: If your business generates revenue and your bank accounts are in good standing (no negative days, consistent deposits), the probability of getting an offer increases.
Is MCA consolidation the right choice for you?
Merchant cash advances can benefit small and mid-sized companies that need to get a hold of cash faster. Nonetheless, it can become a handful if you have more than one. Suppose it has come to the point where you feel like it's a nuisance to manage against. In that case, your business is performing and in good standing. Consolidation might be an option.
If you are considering merchant cash advance consolidation, speaking with a qualified broker is essential. A broker can help you compare offers from different lenders and choose the best option for your business.
*One Park is NOT an MCA Debt Settlement Company & does NOT recommend this route. This article is purely informational on the subject.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.