Merchant Cash Advance Reverse Consolidation: Combining Multiple MCAs into One

For many small business owners, merchant cash advances (MCAs) provide much-needed capital when traditional loans are unavailable. However, taking out multiple MCAs from different providers over time can fragment repayments, straining cash flow. Merchant cash advance reverse consolidation addresses this by combining multiple MCA balances into one new consolidated agreement.

Consolidating through an MCA payoff and novation process can benefit merchants facing unwieldy repayment schedules. Read on for an in-depth look at reverse consolidation – what it entails, its pros and cons, when it makes sense, and what’s involved in the process.

The Fragmentation Problem of Multiple Merchant Cash Advances

A common scenario many small business owners face is securing funding through multiple MCAs from different providers as needs arise. For example, a business may take out:

• A $50,000 MCA from Company A requiring $550 per day payments at 15% interest
• A $25,000 MCA from Company B requiring $275 per day at 18% interest
• A $15,000 MCA from Company C requiring $200 per day at 20% interest

With $90,000 owed across three MCA agreements, the business must divide repayments across all three daily debits. Having to juggle varying payment amounts on different schedules strains cash flow management and forecasting. This repayment fragmentation compounds the headaches for merchants already dealing with tight revenues.

How MCA Consolidation Simplifies Finances

To address this problem, MCA reverse consolidation combines multiple MCA balances into one new consolidated agreement through what’s legally known as a novation process.

For the merchant above owing $90,000 total across three agreements, consolidation could roll everything into a new $100,000 MCA with one consistent daily payment of $750. This simplifies cash flow planning with one predictable number.

Consolidation also allows negotiating a lower interest rate by dealing with just one provider. The business can focus on servicing the single daily debit rather than tracking three.

Typical Process for MCA Reverse Consolidation

The steps involved in consolidating multiple merchant cash advances usually follow this basic process:

1. The merchant compiles details on all open MCA agreements and remaining balances.
2. The business shops different reverse consolidation financers and selects the best offer.
3. The consolidator pays off and satisfies the old MCA balances through novation.
4. The old agreements terminate and daily debits stop.
5. The merchant enters one new consolidated MCA contract with the consolidator.
6. The consolidator takes over servicing the new combined debt through a single predictable debit.

This satisfies and replaces the fragmented debts with one manageable obligation.

What to Look for in Consolidation Terms

Some key characteristics to review in a merchant cash advance reverse consolidation offer:

• Total balance around 10-20% higher than old debts to cover consolidator’s costs
• Interest rate ideally around 10-15%, lower than original rates
• Term length fitting repayment abilities, often 6-18 months
• Daily payment predictable based on revenues and other obligations
• Fees limited apart from potential late and return fees

The new agreement should make financial sense based on a realistic budgeting of business revenues and expenses.

Analyzing the Potential Benefits

MCA consolidation offers several potential benefits for merchants struggling with multiple agreements:

• Lower interest rate saves money over repayment period compared to high MCA rates.
• Consistent daily payments simplify cash flow forecasting with predictable debits.
• Consolidated tracking makes managing just one payment schedule easier.
• Improving finances through lowered, consistent debits helps stabilize revenues.
• Single point of contact for the one consolidator rather than multiple providers.
• Option to refinance the balance potentially opens up once it is paid down later.

For merchants overwhelmed by fragmented MCAs, consolidation can transform the finance management headache to focused stability.

Considering the Potential Drawbacks

However, merchants should also weigh some potential drawbacks before pursuing an MCA consolidation:

• If balances and rates are already low, consolidation may not help much.
• Approvals requiring little documentation should raise red flags. Legitimate consolidators still review ability to repay.
• Be wary of agreements that allow taking substantial new cash out on top of consolidating the old balances.
• If operating revenues continue declining, the single payment may still be unaffordable.
• Excessive fees apart from the financing costs should be avoided.

Consolidating makes the most sense for those with high, fragmented debts but can backfire if not analyzed prudently.

When Does MCA Consolidation Typically Make Good Business Sense?

While not right for everyone, reverse MCA consolidation tends to offer the most benefit for businesses meeting some of the following criteria:

• Currently maintaining multiple merchant cash advances simultaneously
• Struggling to keep up with varied payments on different schedules
• Stuck dealing with high interest rates around 18-30% with current providers
• Having challenges properly tracking and budgeting the daily withdrawals
• Facing revenue declines making existing payments unmanageable
• Wanting to stabilize cash flow to focus on business growth again

The more strained and chaotic the current repayment scenario, the greater the potential easing of pressure through consolidation.

Step-by-Step Process for Pursuing an MCA Consolidation

If reverse consolidation makes sense, follow this game plan:

1. List all your open MCA agreements with balances, rates, payment amounts.
2. Shop different consolidator offers and compare terms to pick the best fit.
3. Select a consolidator and have legal counsel review the agreement.
4. The consolidator satisfies the old MCAs and they terminate.
5. You formally execute the new consolidated MCA contract.
6. The single predictable payments to the consolidator begin.
7. Monitor progress and consider re-consolidating once the balance lowers.

Consolidating requires diligence upfront scouting offers and throughout the process. Rushing into agreements blindly can make things worse.

The Bottom Line on MCA Consolidation

When utilized strategically based on a merchant’s current circumstances and future prospects, MCA reverse consolidation can transform fragmented, chaotic repayments into one simplified obligation. This facilitates financial stabilization and recovery.

But consolidation is not a magic bullet cure-all for every situation. Business owners must carefully analyze their specific scenario to determine if pursuing a consolidation makes prudent financial sense for their company at the present time.

With an informed and reasoned approach, MCA consolidation can prove an empowering tool for merchants. But pursue it with eyes wide open, not as a desperate quick fix. The consolidation decision warrants thorough evaluation like any significant business financing move.

Key Takeaways on MCA Consolidation

• Consolidating combines multiple MCAs into one new agreement.
• This results in consistent daily payments at lower interest rates.
• Best for those struggling with varied debits and high rates currently.
• Not a fit for all situations depending on business finances.
• Must research terms and providers closely.
• When done properly, simplifies finances.
• Consult legal counsel and accountants before finalizing.

By methodically implementing MCA consolidation with the proper caution, business owners can regain control of chaotic cash flow scenarios.

Helpful Resources

Guide to Business Debt Consolidation

MCA Reverse Consolidation Provider Example

Novation Agreement Overview

When MCA Consolidation Is and Isn’t Advisable

Improving Cash Flow for Small Businesses

With the proper strategic approach, MCA reverse consolidation can help entrepreneurs restore stability.