Best Ways to Combine Multiple MCAs Into One Payment

If you own a business and are paying off numerous merchant cash advances (MCAs), you have the ability to consolidate them into one single payment. Combining your merchant cash advances is a strategy that some business owners find helpful in order to manage their financial obligations and simplify the process of making payments.

Refinancing your advances this way is one of the harder choices you can make. Choosing the wrong product will only make your situation worse. Make a mistake and you could take the whole business under.

MCAs can be quite expensive and often not the best source of financing for a business. Business owners can misuse MCA funds, resulting in financial trouble for the business.

Taking a second advance on top of the first can make a bad problem worse. Most business owners use the second advance to run their operations and pay both advances, not pay off the first. This is called stacking.

Some business owners go on to take a third or even a fourth. Rarely does it work out for the business owner. Usually the results end with the business owner on their way to a financial tailspin.

Refinance Only if All of These Three Conditions Hold

Whether you should refinance at all is not always obvious. Deciding if you should proceed with a refinance depends on the financial health and future prospects of the company along with the amount of debt the company is carrying. Refinance only if all of these three conditions hold:

• Your weekly payments are causing hardship.
• The terms of the new loan work for your business.
• The cost of the refinance does not outweigh the savings.

If one of these is missing, do not refinance. Look at alternatives instead, because a refinance could leave you worse off.

If your business is in financial difficulty, talk to a CPA or financial advisor before starting to explore your options. Their guidance will help you decide where to go next.

A Larger Advance

Some business owners like to roll multiple advances together into a larger advance. The extra term length allows the lender to offer the business owner a lower weekly or monthly payment. But the loan often comes with a higher factor rate. Still costly and rarely a good deal.

You pay some charges twice. Here’s how. A conventional loan is amortized. Your fixed monthly payment consists of part interest and part principal. You can pay the principal early and pay no extra interest. This flexibility is the key idea.

A cash advance is not amortized and instead the total owed is determined upfront and divided into equal payments. If you pay early you still pay the total finance cost plus principal.

So when you refinance one advance into a new one, the new advance charges on the payoff amount you owe the old lender. The payoff amount already includes the old interest. You end up paying interest on interest.

That is unavoidable any time you refinance an MCA, but your goal is to choose a product with market pricing.

But remember that while longer terms lower every individual payment, total paid equals payment multiplied by number of payments, so sometimes a lower payment raises the total paid.

The right way to refinance is to structure the new facility so it covers your present and expected financial needs.

Consolidation Loan

Since the SBA no longer allows borrowers to use 7(a) loan proceeds to refinance cash advances, businesses with under $1 million of debt have limited options. These are tiny deals; not many specialty lenders are up for them.

Businesses looking to refinance $2 million or more have more options. There are several specialty lenders who can set up a conventional refinance for the larger debts.

Applying for a consolidation loan usually follows this process.

• Opening interview
• Paperwork submitted
• Due diligence
• Final paperwork prepared
• Closing

For a better chance of approval and a faster approval, gather these documents:

• Two to three years of balance sheets
• Two to three years of income statements
• A schedule of company debts