Merchant Cash Advance Consolidation: How it Works & Who it’s Right For

Merchant cash advance consolidation is a powerful financial tool available to business owners who are struggling with complicated, high-interest debt obligations. Through merchant cash advance consolidation, businesses can take multiple high-interest advance payments and turn them into a more manageable, single-payment loan. As you'll read, this can be an incredibly useful tool for businesses dealing with large debt obligations.

Key Points:

• Merchant cash advance consolidation is a way to combine multiple business loans into one to reduce overall payments and interest rates.
• The consolidation process can help businesses improve their financial situation by reducing their overall debt obligations.
• Businesses that can benefit from merchant cash advance consolidation include those with high loan balances, high interest rates, and those trying to improve their credit score.

What is Merchant Cash Advance Consolidation?

A merchant cash advance consolidation is a financing solution that can help small businesses take control of their finances. By consolidating their merchant cash advances into one loan, businesses can simplify the repayment process, reduce the complexity of their debt, and even potentially save on interest rates and monthly payments. 

Types of Merchant Cash Advance Consolidations

Consolidations come in a few different forms, each providing its own set of pros and cons. Here are the common types of merchant cash advance consolidations:

• Short-term business loans. This solution allows a business to pay off the outstanding balances of multiple MCA loans at once and take out a single loan for the total amount. As the name suggests, these loans offer short-term repayments, so only businesses that can pay off their loan in a short amount of time should consider this option. 
• Reverse consolidation. A reverse consolidation lender gives a business a loan in exchange for taking over payments from a merchant cash advance. This allows the business to extend its repayment period; they'll pay a portion of the payments they previously gave to the cash advance lender but spread over a longer amount of time.
• Debt consolidation loan. A debt consolidation loan is a direct loan taken out to pay off multiple merchant cash advances. This allows you to make one monthly payment at (hopefully) a lower interest rate and a more manageable repayment period. While this solution is often beneficial for businesses, a debt consolidation loan may require a higher credit score and may not be available to all businesses.

How Does Merchant Cash Advance Consolidation Work?

Through consolidation, multiple merchant cash advances can be combined into a single loan, giving business owners more manageable payments, lower interest rates, and fewer long-term consequences. Here’s how to process works:

• Gather financial information. Collect information about your current merchant cash advances, including the lender, loan amount, interest rate, and payment schedule. 
• Get pre-approved for consolidation. Shop around for merchant cash advance lenders that offer consolidation services and submit your application for pre-approval. 
• Submit your full application. If you’re pre-approved, you may have to fill out a few more pieces of info, but it varies by lender. Then you should get the official approval and your lender will consolidate your cash advance loans into a single loan. 
• Start making payments. Your lender will set up a repayment plan with you that fits your cash flow. 

Merchant Cash Advance Consolidation vs Refinancing: How Are They Different?

Merchant cash advance consolidation and merchant cash advance refinancing are two very different methods of consolidating cash advances. While both are effective methods of obtaining working capital, each approach has unique benefits and drawbacks.

Merchant cash advance consolidation involves taking multiple merchant cash advances and combining them into one larger advance. The new, larger cash advance is often given a longer repayment period. This can reduce the pressure of having to repay multiple advances at once, and may result in a lower overall repayment amount. On the other hand, since the borrower is taking on a larger loan, the interest rate may be higher and the additional costs of consolidation may be quite high.

Refinancing a merchant cash advance involves taking out a new loan to satisfy the existing cash advance— but at a lower interest rate. This will result in a lower total cost over the loan’s lifetime, as the borrower is taking advantage of the reduced interest rate. However, the borrower must be able to qualify for the refinancing option and be aware of additional fees and terms that may come with it. 

What Does an MCA Consolidation Loan Cost?

MCA consolidation loans typically carry an origination fee of between 5% - 15%. This fee is typically deducted from the loan prior to disbursement and is calculated based on the amount of money being loaned. In addition, these consolidation loans also tend to carry high interest rates. Interest rates for MCA loans vary depending on the lender and the length of the term.

MCA consolidation loans also come with additional fees such as late payment fees and early repayment fees. Before signing on to an MCA consolidation loan, make sure you understand all the fees associated with the loan, and how they will affect the total cost of the loan.

What Are the Requirements for a Merchant Cash Advance Consolidation?

Merchant cash advance consolidation is a financing solution designed to help business owners pay off multiple debt obligations quickly and easily, but there are a few requirements business owners must meet first. You’ll need to:

• Have been in business for at least two years. 
• Meet minimum monthly revenue requirements. 
• Have a good personal credit score.
• Have the ability to make a down payment on the new loan. 
• Be able to provide a business plan and other financial documents. 

Why Consolidate Your Merchant Cash Advances?

Merchant cash advances can be a useful and convenient way to get the funding your business needs. However, it can quickly become overwhelming when a business has multiple merchant cash advances running at the same time and they can often struggle to keep up with each separate payment. That’s when consolidation can come in handy. Here are a few reasons you may want to consider consolidation:

• Lower interest rates. Consolidating your merchant cash advances will allow you to shop around for better rates and secure a lower interest rate for your consolidation loan, as long as you qualify. 
• More manageable repayment terms. Instead of having to manage and keep track of multiple payment dates and amounts each month, consolidating your merchant cash advances will allow you to pay one amount each month, with one due date, streamlining and simplifying the repayment process. 
• Faster repayment. In some instances, consolidating your merchant cash advances will also allow you to pay down the debt faster since you’re not dealing with fees and multiple interest rates. 
• Improve your credit rating. Paying down your debt promptly and consistently will help to improve your credit rating, allowing you to qualify for more attractive loan rates in the future.

Pros and Cons of Consolidating Merchant Cash Advances

Pros of Consolidating Merchant Cash Advances

• Lower interest rate. The most obvious benefit of consolidating your merchant cash advances is that it can significantly reduce your money costs over the long run. By combining multiple loans into one single loan with a lower interest rate, you can save money on interest payments over the life of the loan.
• Potentially extend the loan term. Consolidating your merchant cash advances into one loan can also allow you to potentially extend the length of your loan. This means you can lower your monthly payments and gain more time to repay the loan in full.
• Single due date. Consolidating multiple merchant cash advances into one loan also means that you only have to remember a single due date. This allows you to easily track your payments and streamline your repayment process.

Cons of Consolidating Merchant Cash Advances

• Potentially time-consuming. Consolidating your merchant cash advances into one loan can be a lengthy and time-consuming process. You'll need to shop around for the best loan rates and terms, explore consolidation options, and submit detailed documentation to the lender.
• You need a top-tier credit score. Consolidating your merchant cash advances will require you to have a good credit score, as the lender will need to know that you have the creditworthiness to make the payments on time. If your credit score isn’t up to par, you might have a more difficult time qualifying.

Should My Business Consolidate Its Merchant Cash Advances?

Businesses should consider consolidating their merchant cash advances if they’re having difficulty managing their cash flow. Consolidating multiple merchant cash advances into one loan can be beneficial for businesses because it can lower the cost of borrowing, reduce the headache of managing multiple loans, and free up cash to invest in other areas of their business.

When considering whether it makes sense for your business to do a merchant cash advance, make sure to do the following:

• Consider the overall cost of debt consolidation vs. the cost of keeping the multiple cash advances.
• Consider the convenience and ease of managing one consolidated loan vs. multiple ones.
• Calculate your potential interest rate (by getting loan quotes) of the consolidated loan and compare it to the existing cash advances combined.
• Weigh the risks associated with consolidation in relation to the overall benefits of doing so.

How to Apply for a Merchant Cash Advance Consolidation

Applying for an MCA consolidation is a relatively straightforward process. Here are the steps to follow:

• Research different MCA lenders to find one that best suits your needs. Consider factors such as terms and conditions, interest rates, repayment terms, and customer service reviews.
• Gather the necessary documentation. As part of the application process, you may need to provide financial statements, evidence of business operations, and information about the purpose of the loan.
• Submit your application. You provide the necessary documentation and complete the application form provided by the lender.
• Wait for approval. The lender will review your application and make a decision. 
• Sign loan documents and receive payment. Once your loan has been approved, you’ll need to sign the loan documents and receive payment from the lender. 
• Begin repayment. The terms of the loan will be specified in the repayment documents you signed. Be sure to make the payments on time to avoid defaulting on the loan.

Alternatives to Consolidating Merchant Cash Advances

Consolidation isn’t always the best option for merchant cash advances. Some business owners may not qualify for lower rates or qualify for the loan at all. In that instance, you have a few other options:

Term Loans

Taking out a term loan might seem like just swapping one form of debt for another, but a term loan can often be more affordable than a merchant cash advance. Term loans are typically offered at lower interest rates than merchant cash advances and can provide a reliable repayment schedule for business owners.

Line of Credit

Business owners can take out a business line of credit to cover their merchant cash advance debt. Lines of credit have a much lower interest rate than merchant cash advances, but they will also typically require collateral or a personal guarantee.
Debt Settlement

Business owners can try to negotiate a settlement on the amount owed for their merchant cash advance. Generally, the debt settlement process involves negotiating a one-time payment to settle the debt for less than the full amount owed. You’ll want to involve a debt settlement company, which isn’t always the cheapest option, so you’ll want to use this as one of your last resorts. 

Filing for Bankruptcy

As a very last resort, small business owners may consider filing for bankruptcy if they cannot pay back their merchant cash advance. Filing for bankruptcy can provide relief from debt collection and other legal consequences, but it will also leave a long-term mark on your credit report.

Useful Resources for Businesses Looking to Get Out of Debt 

Dealing with debt is never easy, especially if you're a small business owner fighting for survival. However, you are not alone. There are several organizations dedicated to helping small businesses get out of debt and back on their feet. These include:

• National Federation of Independent Business (NFIB): Provides legal services, debt counseling, and other financial and management advice. 
• Small Business Administration (SBA): Offers guidance and resources for businesses to manage debt. 
• Business Debtline: A free impartial debt support service to help prioritize debt and make an effective payment plan.
• The Debt Advice Foundation: Offers free debt advice, information, and money management services to help entrepreneurs understand their debt situations and make the right decisions. 
• SCORE: a non-profit counseling service that assists small businesses with debt and debt collections and helps create a plan to pay off debt.

Final Word

Merchant cash advance consolidation can offer many benefits, but ultimately, it depends on the individual business and its unique needs. Although merchant cash advance consolidation can save a business money in the short-term and help them manage their debt obligations, it’s important to thoroughly research the process, explore the different options available, and make sure all fees and repayment terms are clearly understood before committing to a merchant cash advance consolidation.