How does a merchant cash advance consolidation work?

May 2022

Merchant Cash Advances are a great financing tool for getting working capital fast, without the hassles of a traditional loan. However, if you find yourself in a position where you have more than one MCA that you are repaying, 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 MCA's 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. This article, covers what consolidation is when paying back an MCA, how it works, and if it's even an option for your business.

What’s a merchant cash advance consolidation?

A merchant cash advance consolidation is a form of financing where you seek to join multiple MCAs into one. In other words, one MCA funder will buy out your other MCA's, which can benefit you because you only have to worry about a single payment.

As a business owner, you may know that taking multiple merchant cash advances can mean getting multiple repayment schedules and paying different factor rates for each. With the consolidation of these merchant cash advances, you could possibly end up with a lower factor rate than you were paying on the multiple advances or at least with one payment.

This type of consolidation may allow you to free up cash flow, increase ease in your repayments, and reduce the number of funders you owe. Companies who offer you 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 they way you need to.

*One Park is NOT an MCA Debt Settlement Company & does NOT recommend this route. This article is purely informational on the subject.

Things to consider with merchant cash advance consolidation:

So, how does this usually go?

Before moving forward, you need to run the numbers to make sure this will actually be beneficial to your business. To do this, check on what you are currently paying 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 going to be higher compared to 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 bigger payments, which might be more difficult for your business. On the other hand, a longer 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 MCA’s, the length of term, and the cost of the capital; but it is always good to thinking through and understand what you are getting yourself into first. The next step is understanding the usual requirements.

Merchant cash advance consolidation requirements:

The factors at play for the funder to consider “buying out” your other MCA’s will be:

  1. The Balance: The balance you have with these funders. i.e. if you have 2 positions and you still owe 90% of them, your probability of getting a funder to give you an offer is very low.

  2. 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.

  3. Business Health: If your business is generating revenue and your bank accounts are in good standing (no negative days, consistent deposits), then the probability of getting an offer increases.

The bottom line about MCA Consolidation

Merchant cash advances can come very useful to 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. If it has come to the point where you feel like it's a nuisance to manage against, your business is performing, and you are in good standing, consolidation might be an option.

*One Park is NOT an MCA Debt Settlement Company & does NOT recommend this route. This article is purely informational on the subject.