I get some version of the same phone call almost every week. A business owner is behind on their payments and they’re desperate for help. More often than not, they’re trying to get out of a merchant cash advance (MCA). There are a million ways to end up in debt with an MCA, and that’s not the focus of this post. This blog post focuses on what to do when you’re already in debt with an MCA.
Consolidate All Their MCAs into One Big Loan
Business owners often call us saying they need to consolidate all their MCAs into one big loan. The answer is usually “no.” Bank financing is tough to come by. And usually, all those MCAs on your bank statements scare the daylights out of banks. The bank thinks, “you obviously just want to stack more MCAs and then default on the bank loan.” Another thing to consider: an MCA isn’t a loan. It’s a purchase of future receivables by a non-bank, usually a company of a few employees, based on a few months of bank statements. For this transaction, they charge a lot of money. And it has a short payback period.
MCA companies refuse to say they’re lenders, even though their website has “consolidation” on it. Or if they say “direct lender.” If an MCA company were offering “consolidation loans,” they’d be subject to lending regulations that apply to other forms of loan servicing. So they can’t, technically, offer a consolidation loan. What they can offer you is what we call a “reverse consolidation.”
This is an additional MCA stacked on top of your existing ones. Instead of getting a lump sum from the MCA, you are receiving “weekly deposits” from the funder to cover your payments to the other funders plus a little extra “breathing room.” The weekly deposits decrease over time as your other MCAs pay off. The big trick here is that even though you receive the money in smaller installments, you’re starting to pay the reverse MCA on day one. Daily payments on the full amount.
Now, I understand why this sounds good when you’re the one getting pulled every day. After all, you’re strapped for cash and you’re being assaulted by lenders. A reverse MCA solves your problem of cash flow… At first.
What’s the difference between a “reverse consolidation” and a regular consolidation loan? A regular consolidation loan is just what it sounds like: one loan that pays off multiple existing debts. The borrower makes one monthly payment to one lender. A “reverse consolidation” is just another MCA. The borrower still has to make daily payments, not a single monthly payment. Why would a business owner choose a “reverse consolidation” over a regular consolidation loan? Because the business owner probably can’t get a regular consolidation loan. A “reverse consolidation” is one of the few ways for a business owner to get more money when they already have MCAs.
Why do brokers recommend this? Because they get more money. Brokers start out by helping business owners stack more MCAs. We’ve had clients with up to 27 MCAs, totaling $4 million in MCA debt. Once the brokers are unable to get you another MCA, they steer you towards a reverse. It’s a great strategy for brokers, but terrible for business owners. Let me explain.
Lendora Capital, LLC V. Valle Security Texas, LLC
The case at issue here is Lendora Capital, LLC v. Valle Security Texas, LLC, New York Supreme Court, Monroe County. The funder sued the business and its owner, claiming they had defaulted on the reverse. Here’s what happened: Valle had 5 MCAs with Lendora and Lendbug. It sold $333,000 of its receivables (10.5%). In exchange, it agreed to pay back $499,167. Instead of an upfront deposit, however, it was receiving weekly deposits over 25 weeks. Right away, the business was making a daily payment of $2,495.84. 200 daily pulls. Before the “reverse” MCA: balance $316,956.66, daily payments $3,741.31. After the reverse: balance $816,123.66, daily payments $6,237.15. The debt went up more than double. And as the other positions drop off, that $2,495.84 stays on.
Put those daily figures side by side. The reverse payment alone was almost as much as the combined daily payments on its other MCAs. This is a big one because this increase in daily payments means more money is being pulled out of the bank account each day. That means the business is left with less cash to continue operations. Every week, your deposits go down as your other MCAs get paid off. But the daily payment stays the same. So the business ends up facing the same cash crunch it started with, only deeper in debt.
Why does the daily payment kick in immediately if the money comes in over 25 weeks? Because on paper, the business has already sold those receivables. The daily payment is calculated based on that full $499,167 payback, not the amount of money the business has actually received so far. Think of it like this: the funder says, “I am giving you a total of $333,000 over the next 25 weeks. You owe me $499,167 in total. Therefore, your daily repayment obligation is $2,495.84 from today onwards.” So the business owner is paying on the full amount even though they haven’t received all the money yet. That’s the catch.
Consolidation Offer
If a broker or funder calls you with a consolidation offer this year, first ask them how the daily repayment works if they’re offering a reverse consolidation. Do they want you to start paying from day one? Is the payment based on the full amount even if the funds are disbursed over time? Second, calculate what your new daily payment will be and compare it to what you’re paying now. In the Valle case, the daily payments went from $3,741.31 to $6,237.15. That’s an increase of about two-thirds. Does your business have that kind of daily cash flow to cover it?
Just because business owners think “consolidating” is a solution to their debt problem, doesn’t mean there’s some magic lender waiting in the wings to throw their hand up and come along with a magical ribbon that turns MCAs into a bank loan. The brokers are making a lot of money off of you, and you’re desperate.
In short, if your business’ revenue is down and you need to reduce your payments, you can’t do it by taking on more debt. When the reverse payment exceeds the amount you can pay, it’s game over. So, should you trust MCA consolidation lenders and alternative funding sources in 2026? No. Not when the “consolidation” on offer is just one more advance stacked on the pile.
