Can You Consolidate MCA Loans? Why It May or May Not Make Sense

For small business owners using merchant cash advances (MCAs) as financing, it’s common to end up dealing with multiple providers as needs arise. This fragments repayments across different accounts and schedules. MCA consolidation aims to address this by combining multiple MCAs into one new agreement. But is it the right move for every situation? Let’s dive into the ins and outs of consolidating these business loans.

The Appeal of MCA Consolidation

At first glance, consolidation seems attractive for entrepreneurs juggling multiple MCA payback obligations. Here are some potential benefits driving interest in consolidating:

• Simplifies finances with one monthly MCA payment instead of many
• May lower the interest rate compared to original MCA agreements
• Frees up cash flow by reducing overall repayment burden
• Allows negotiating consistent payments sized appropriately for your revenue
• Consolidator pays off and closes old MCA accounts
• Can assist in stabilizing struggling businesses through improved cash flow management

For merchants feeling drowned by fragmented MCA payments, consolidation can appear to throw you a lifeline.

How The MCA Consolidation Process Works

Consolidating MCA loans follows this general sequence of steps:

1. You compile details on all open MCA agreements and balances owed.
2. A consolidation financer is selected after comparing offers from potential providers.
3. The consolidator pays off and closes your old MCA accounts through a novation process.
4. You formally sign a new agreement with the consolidator for the combined total amount.
5. The consolidator takes over servicing the consolidated MCA balance going forward.
6. You now make consistent payments tailored to your budget to this one entity.

The consolidator effectively buys out your prior obligations and establishes a new single agreement.

TheMCA Consolidation Experience Can Vary

While the process seems straightforward, individual experiences can vary significantly based on:

• The terms you are able to negotiate with the consolidator
• How organized your financial records are
• Your overall financial health and revenue outlook
• How well the consolidator actually understands your business
• How patient and persistent you are shopping multiple offers
• Reviews of the reputation of the consolidator you choose

Rushing into agreements with the first provider offering easy approval is often a recipe for dissatisfaction. Doing due diligence pays off.

Key Factors to Consider Before Pursuing MCA Consolidation

While appealing at first blush, ponder these dynamics before deciding to consolidate:

Total Balance Owed Will Increase

The new consolidation balance needs to exceed your old combined totals to cover the consolidator’s fees and pay off the prior lenders. This means you take on a larger total debt.

Your Credit Score May Take a Hit

The new financing inquiry and higher overall debt could negatively impact your credit score, at least temporarily.

It Can Mask Deeper Issues

If cash flow is already deeply strained, consolidation alone may be insufficient to restore stability long term.

Opportunity Costs

Money spent on consolidation fees could possibly be better invested in business growth initiatives.

Rate Savings May Be Underwhelming

A 1-3% interest rate reduction may not move the needle significantly on your repayment burden.

Progress Rewinds

Just as you were making headway paying down old MCAs, the process starts over with the new combined balance.

Signs MCA Consolidation May Be Ill-Advised

While consolidation can aid some merchants, it could be ill-timed or backfire in these situations:

• You already enjoy reasonable MCA interest rates below 10-12%.
• Your revenues are unstable or declining, putting future repayment at risk.
• Older MCA balances are low enough that consolidation savings will barely register.
• Your credit score is sub-500 already and can’t handle further financing inquiries now.
• The consolidator isn’t requesting sufficient documentation to truly understand your finances.
• You haven’t explored alternative options like negotiating extended terms with current providers.

Again, one size does not fit all when it comes to business financing decisions like MCA consolidation.

Questions to Ask Before Committing to a MCA Consolidation

As you evaluate the prudence of consolidating your MCAs, ponder questions such as:

• What is the total balance increase I’ll take on and additional lifetime interest costs?
• What other business investments could provide better returns than consolidation savings?
• Could I negotiate improved terms with current providers instead?
• Does this address the root drivers of my cash flow challenges?
• Does my gut say I’m pursuing this as a quick fix without deeper diagnosis?
• Am I confident I can handle the new payments based on realistic financial projections?

Probe sincerely whether consolidation truly aligns with your overall business strategy and goals right now. Don’t let frustrating finance management be your only motivation.

The Decision Ultimately Requires Brutal Honesty

Before jumping into MCA consolidation, engage in thoughtful and sober analysis of your motivations and business circumstances:

• Resist the temptation of a quick fix if signs point to unresolved core problems.
• Accept there may be more strategic business investments than consolidation if cash is truly freed up.
• Acknowledge that with patience and discipline, you may be able to correct course without consolidation.
• Prepare for some setbacks and self-doubt amid the consolidation process.
• Have the courage to recognize consolidation may not be the right choice at this juncture.

Bringing this level of humble introspection to the decision can reveal wiser paths forward.

Bottom Line on MCA Consolidation

When carefully executed based on clear-eyed analysis of your situation, consolidating multiple merchant cash advances into one new agreement can bring meaningful stability. But pursued in haste or denial, it may only delay facing deeper reforms needed to shore up your business finances.

The appeal of MCA consolidation is understandable. But resist the allure of quick wins if your circumstances suggest more strategic opportunities or patience exist. Apply the same diligence expected in launching a new business line when determining if consolidation is your best move currently.

With an informed perspective and prudent restraint, you can decide objectively whether consolidating merchant cash advances advances your goals or not. Don’t let the frustrations of finance management alone dictate this impactful choice.

Key Takeaways on MCA Consolidation

• Consolidating combines multiple MCA’s into one agreement with consistent payments.
• This can aid cash flow management but also increases total debt owed.
• Best for those with revenue to handle payments and high interest rates currently.
• Not a good fit for all situations – thorough review is required.
• Weigh options and impact on entire business strategy, not just finance relief.
• Decision requires brutal honesty about motivations and current capacities.

Approach MCA consolidation as a strategic investment, not a quick fix, to determine if it is truly in your best interest.

Resources

MCA Consolidation Provider Example

Hidden Risks of MCA Consolidation

Alternatives to MCA Consolidation

Pitfalls of Debt Consolidation

Improving Small Business Cash Flow

As with any major business decision, pursuing MCA consolidation deserves careful due diligence.