Best MCA Refinancing vs. Debt Restructuring Options

When revenues fall short and it’s hard to repay, the business resorts to borrowing a second or third merchant cash advance. This type of MCA stacking quickly gets out of hand and becomes unaffordable as the debts rise higher and the business owner tries to take out yet another cash advance just to pay the previous MCA payments. Should you restructure your loans? Or refinance to a longer-term, lower-interest loan? It is easy to understand that refinancing wins over a debt restructure in the sense that it has lower interest rates. But if you have no collateral to get a term loan or don’t qualify for it, the restructure is the better option.

To decide, create a list of all the merchant cash advances you owe, the due date, the repayment amount, and the term of each advance. You can add up the total you pay toward your merchant cash advances every day, divide it by your average daily revenue, and see if it totals more than 25%. If it does, that is a sign of severe financial distress. If the number is over 40%, then operations are likely failing. You should also check the monthly amount left after you make all the debit payments to see if there is any hope to change the outcome. Do you have a source of collateral you can use for refinancing?

MCA Consolidations

With a loan consolidation, you can pay off your high-interest merchant cash advances with the capital you receive from the loan. In practice, the lender makes payments directly to the merchant cash advance providers. The new loan comes with one fixed monthly payment and a term loan structure. Of course, the interest rate is lower than that of an MCA.

Commercial banks will charge lower annual percentage rates (APR) from 9% to 15% but are less likely to approve owners who have a lot of merchant cash advances on the books. When they see MCA stacking, they often deny the loan. But there are specialty lenders that issue MCA consolidations and charge anywhere from 15% to 30% APR for terms of 12 to 48 months. The cost is higher.

If the cash advance is still outstanding and being paid daily to any provider, then you cannot refinance it with an SBA 7(a) loan. Since October 1, 2026, the SBA has required that the MCA be converted to a term loan and amortize for 24 months before it can be included in a debt refinancing with an SBA 7(a) loan.

Another option is to use your assets as collateral for another loan. So, for example, if you own a piece of real estate or you have receivables or inventory, then you can borrow against them at lower rates around 7-14%. Of course, you risk losing the assets if your business fails.

Negotiate a Solution

Not all businesses are eligible for merchant cash advance consolidation or refinance. The aim is to bring down the total monthly payments without taking out new debt. Contact each funder individually to explain your situation and negotiate a solution. Some cash advance funders may be willing to extend your current terms. The most common deal is to cut the daily debit, say from $500 to $250, and extend the term so that the provider still collects the full amount. This can be lifesaving if sales have fallen and the company needs to reduce the daily hit on cash flow, though it does mean paying off the debt takes much longer.

Most MCA contracts have a reconciliation clause that says if revenue drops, the daily debit should drop too. It is not automatic: you need to ask for it when you qualify. And many owners never use it. You will need to show that your revenues have decreased and the daily merchant cash advances payments consume too much of your daily sales. Sometimes just delaying a few payments on an MCA gives you a cash flow breather. Also, get any deal like this in writing first. And some funders will not even talk to you about renegotiating terms to lower the payments. They will just sue or file a confession of judgment.

Dealing directly with funders works best when you have only one or two MCAs outstanding and are still early in distress. When you have three or more MCAs, funders get very suspicious that you may be about to file for bankruptcy so they want to collect their money first.

Some owners decide to do a settlement: pay less than the full balance and close the accounts. If you are not able to make the payments on the MCA and you fall behind, the funder often wants to get something instead of potentially nothing. Other funders, though, will take a hard line and refuse to settle and may sue to get their money. Settlement firms negotiate with individual funders for a lump-sum payment, usually 40-70% of the remaining balance on each MCA, and then pay off the lenders with a consolidation loan or the owner’s cash. They charge 20-25% of the savings, after the debt is paid.

If a lender forgives debt, that can count as taxable income. The lender files a Form 1099-C with the IRS if $600 or more is canceled. However, if you were insolvent at the time - that is, your liabilities were greater than the value of your assets - you can exclude it, up to that gap, from your income. Use Form 982 to do this, but ask a CPA first.

Beware of an MCA consolidation that is just a new MCA. If the offer does not have an APR, monthly payment, and an amortization schedule showing how the payments whittle down the debt, it is not a real loan. Be alert for scammers asking for an upfront payment to negotiate with lenders. Reputable settlement firms are paid a percentage of what they save borrowers only after they have settled the debt. A demand for upfront payment of $5,000 to $25,000 is very suspect. Also beware of guaranteed approval with no credit check.

Many cash advance contracts contain a clause that states that you, the borrower, agree to a judgment if you do not make the required payments. Since August 30, 2019, New York law bars filing one there against debtors living outside the state, but not New York residents.

Bankruptcy May Be the Only Way Out

If the funders are still insisting on full payment, lawsuits are pending, and the business has no path to regain positive cash flow, bankruptcy may be the only way out. It comes with extra court and attorney costs to file. Small companies with debts under $3,424,000 can restructure cash advances using Chapter 11 now, through Subchapter V. Only the owner files a plan, within 90 days. A trustee is appointed to help find a resolution. There are no quarterly trustee fees.

Before it comes to that, when applying for debt consolidation, do not expect to be approved by the first lender you try. You need to apply with several consolidation lenders at once. And if all else fails, try negotiation or a settlement. Do not use another MCA to pay off existing debt.