Consolidate MCA loans and daily payments
Welcome to Delancey Street. We are a nationwide business debt settlement company. We help business owners all across the country deal with predatory MCAs and help them come up with a game plan that helps them resolve this debt in a safe and legal manner. Now, one of the questions we often are asked is whether or not it makes sense to consolidate multiple MCA loans. Many people ask us if our service is in fact a consolidation service as well.
The fact of the matter is, if you have two or three MCA payments piling every day, you know the feeling. Money is going in and money is going right back out. Now, consolidation is one way business owners try to escape that trap. Often, the charm of combining several daily payments into one slower payment makes sense for them. But how that happens truly does matter. Some versions will truly pay off your advances. Others are just adding another advance on top of it. Here’s how to tell the difference.
Now, one of the things that we do at Delancey Street is we do business debt settlement, which comes in many different forms. One is we can do a lump sum payment in order to pay off all your debts for a discount, or we can engage in a fundamental restructuring. What that does is makes it so that all of your advances are now combined into one payment that is paid on a monthly basis to the lenders or on a weekly basis.
True consolidation and reverse consolidation
Now, if you engage in our business debt restructuring services, the net effect of that is similar to a consolidation in terms of the impact it has on your daily and weekly cash flow. Because you are now only making one payment and the term has been restructured over a longer period of time, you are in essence buying extra time without having to pay for it necessarily through an advance, which would cost you 100 to 200% APR, or some other high-interest consolidation product that will only offer you a short reprieve.
Now, several MCAs will feel heavy very fast. One MCA is hard enough. Most businesses simply don’t have the margins to afford 100 to 200% APR. But when you have two or more at once, that’s called stacking, and it gets heavy very, very fast. Each advance is now being repaid with a fixed daily or weekly amount. That payment does not drop when sales drop, even though it should. So three debits costing the same on slow weeks will be the same as on a good week in terms of the net impact it has on your business.
Many MCAs are described as a purchase of future sales, not as a loan with interest, but that is simply not true. Often many of them operate like a loan despite being called an advance. But when you get an MCA, you’re getting cash now and agreeing to pay a larger fixed amount later. That larger amount is determined by the factor rate. The cost is the gap between the cash received and the total repaid back to the lender. The full amount is owed no matter how fast you pay. This is why a second advance to cover the first one raises the daily total you’re now laying out every day. In essence, every day now you have two pulls instead of one.
So what does MCA consolidation actually mean? Well, MCA consolidation, or consolidating different MCA loans, usually means one of two very different things. The first is a true consolidation. You’re able to somehow get a new loan with a longer term. You then use that money to pay off your MCA balances in full. After that, you only have one payment left. It could either be a weekly or a monthly instead of a daily. The goal, though, is to lower the payment pressure, improve your cash flow.
The second, though, is called a reverse consolidation. By no means is this paying off your MCAs. A new advance is being taken to cover your MCA payments. You’re then repaying that advance over a longer period of time. But at this point now, you still owe the old MCAs plus the new funding you took. While your weekly outlay may drop for a while, thereby improving your cash flow, the total debt rises, and now you’re staying in debt much longer. One option is reducing the number of debts. The other is adding another layer on top of it.
How true MCA consolidation works
Now, let’s talk about how a true consolidation, a true MCA consolidation actually works. A true consolidation typically follows a very simple sequence.
- First, you list every advance. You have to remember who the funders are, their amounts that were originally borrowed, the total repayment amount, the remaining balance, your daily or weekly payment, and how it’s actually being taken.
- Second, a new lender is going to review your business. They’ll look at your revenue, bank statements, time in business, and the amount of current debt you have.
- Third, if you actually are approved by this lender, that lender will offer you a term loan for a set amount and a schedule.
- Fourth, the money they give you will satisfy the old balances. In most cases, the lender will just pay off your existing balances by wiring the money to them directly. Typically speaking, you will want a written payoff confirmation from each MCA lender, and you have to make sure the automatic debits stop.
- Fifth, you’ll now start paying the new term loan you just signed up for. In the best case scenario, you’re now moving away from several daily debits to one weekly or monthly payment. It doesn’t mean you always pay less in total. It just means you have more time with more breathing room each week. The goal here is cash flow, freeing up cash flow that can then be used to reinvest into the business.
What true MCA consolidation lender will look at
Now, let’s talk about what a true MCA consolidation lender will actually look at. Consolidation is not just some automatic process. The new lender is taking a risk by paying off your high-cost debt, so they’re going to look closely at your cash flow. The main question they’re looking at is simple. After your normal bills, is there enough left to support one new payment? They’re going to look at your deposits, your average bank balance, your overdrafts, and the MCA pulls. They’re also going to look at how much revenue already goes to servicing the debt. If half your money goes to paying off the cash advances, lenders are going to see that as a warning.
There are other variables to look at, like credit history, time in business, and the industry you’re in. But cash flow is the most important thing. Some owners owe more in remaining paybacks than any one lender will advance. If you can’t cover every advance, a partial deal is possible, which will leave you with a new loan plus one or two old MCAs still pulling daily. That can be worse than doing nothing.
MCA Consolidation loan versus reverse MCA consolidation loan
Now let’s talk about a consolidation loan versus a reverse MCA consolidation loan. It does help to compare these two side by side because both are sold as relief from brokers and lenders.
A true consolidation is paying off your old balances and leaving one debt. A reverse MCA consolidation is leaving old balances in place but then adding a new one on top of that.
A true deal usually moves you to a weekly or monthly payment with a fixed end date. A reverse will often lower your weekly outflow for now, but it’s extending the time you owe. A true deal will simplify your bank activities because the old debits stop. A reverse will complicate it because the old debits continue, plus you have a new payment on top from the reverse MCA consolidation. While a true deal may still be costly, the goal is one balance with one payoff.
A reverse MCA consolidation will almost always raise your total cost because you are funding payments with more funding. It could help in week one, but the risk shows up later when you owe more and have less room now to borrow again. Most of the time, when you get a reverse MCA consolidation, that’s the end of the road. No one is going to give you more money on top of that.
When MCA consolidations help and when it does not
Now let’s talk about when consolidations help and when it does not. Consolidations help most when your core business is still functioning and operational. You’ve got sales and margins are okay. The issue you’re dealing with is timing. Too much cash is leaving you on a daily basis. When you move to a longer weekly or monthly schedule, that can help stabilize your business bank account. It leaves room for payments to vendors, payroll, and sales.
It will help much less when revenue has dropped for months or the business is losing money on each sale. A new payment is not going to fix your core operating issues like weak sales. It will help when rent, taxes, or vendor bills are behind and need breathing room due to cash flow being sucked away from daily or weekly MCAs. If the new loan only covers MCAs, those other bills obviously still remain. Another limit is your behavior after. If you pay off MCAs and take a fresh advance a month later, you end up stacked again, and now you’ve got the new loan plus your daily pulls. If your future cash needs are not addressed, consolidation will only buy you a short reprieve before you are in the same hole again.
Practical moves before you decide
So what are the practical moves to think about before you decide? You don’t need perfect records to make a better choice. You have to start by making a clear list of what your goals are and what your current MCA positions are. Write down each balance, payment size, timing, and payoff terms. It is important to get an MCA payoff letter when you can. Some contracts will reward you with early payoff terms or fees, so it’s important to read the actual deposit.
Next, you should look at your bank records for the last three months. Add up your average weekly deposits minus out rent, payroll, inventory, and MCA pulls. What’s left is what a new payment has to fit inside of. Also, be honest about slow weeks and how that’ll impact your business. A payment that only works in your best month is not safe and will result in jeopardy for your company.
Then you should compare total costs and payment size. Ask what it funds, what it’s repaying in full, what fees are going to be applied, what the schedule is, and what happens if your revenue falls. Also ask if there are any personal guarantees or other liens that are going to be applied due to the new funding. It is super important that you pause new borrowing while you review. Another advance during talks can hurt approval.
Bottom line when consolidating MCA debt: consolidating MCA loans can work if it clears the stack and leaves one payment only. It fails when it only covers payments briefly and leaves more owed. The key ingredient is whether the old balances are paid in full and the old debits are going to stop. Start looking at your revenue, not the stress on your business. If the business can carry one slower, longer payment, consolidating might be the right pathway forward. If revenue can’t support that payment, then another path may fit better. At Delancey Street, we encourage business owners to learn about business debt settlement and business debt restructuring because it can be a helpful pathway and a great alternative to MCA consolidation loans.
