How To Get Out Of MCA Loans


Did you take a merchant cash advance, or were you unlucky enough to take SEVERAL merchant cash advances? Did a broker “sandwich you,” with several merchant cash advances, and now you’re bleeding money? MCA loans are high interest funding solutions. 

Getting out of MCA loans is probably one of the toughest and most difficult things you’ll ever do. Merchant cash advances can become addictive. The money is EASY and FAST to get. You can literally get funded in 24 hours. So the question is how to get out of MCA loans fast. What do you do when you have 1, or more, merchant cash advance positions? What options do you have? Is there any way out?

The answer is yes.

You have several options depending on your financial situation.

Do you have real estate? It might be a way to get out of your MCA loan.

You can get out of MCA loans by getting a real estate collateralized loan, like a hard money loan. These loans come with a 9-12% APR cost. This is significantly cheaper than having an MCA. Moreover, the hard money loan typically has a balloon payment at the end of the loan. As opposed to merchant cash advances which have a daily, or weekly, payment.

You can use a real estate loan to pay back the MCA loan. This will switch you from a daily/weekly payment to a monthly payment, or – a payment at the end of the loan (a balloon payment for the principle and interest). This means you now have immense latitude. You have more daily cash flow, and you can invest that cash flow back into your business, or use it just to survive and overall be “ok,” financially speaking.

Do you have good credit? It can help you qualify for options that avoid MCA loans.

If you have good credit, this can help you get out of an MCA loan. You can use your good credit to qualify for a conventional term loan from a bank, or SBA loan. Alternatively, you can use your good credit to qualify for a line of credit.

Many line of credit companies like Fundbox, Bluevine, etc, allow you to use your good credit to qualify for a line of credit which is VERY CHEAP compared to a traditional merchant cash advance. Often the cost of a line of credit is 1-2% a month, whereas merchant cash advances end up being 80-120% APR a year.

Should you prepay the mca loan?

Many people want to get out of MCA loans. But that doesn’t mean there’s a reason to do it. If the merchant cash advance lender offers no prepayment discount, there’s literally NO advantage to paying it off early.

If you work with an A grade lender like RapidAdvance, Ondeck, etc, there might be a good reason to pay off a merchant cash advance early. Often lenders like this will offer you great rates, and great incentives, to pay off the loan early.

What should you do if there’s no prepayment discount?

If there’s no prepayment discount from your MCA lender, there’s no reason to get out of the MCA early. With no savings, why bother paying for the entire MCA funds early? While the daily payments might not be convenient, it doesn’t help paying the loan early. You’re still on the hook for paying the entire MCA loan and its corresponding interest, regardless of when you pay it off.

How to get out of an MCA loan early

Before you take an MCA loan, HAVE AN EXIT STRATEGY in place. If you INTEND on repaying the MCA early, don’t take the MCA without having an exit strategy ALREADY lined up.

How can Delancey Street help you get out of an MCA loan?

We can help with you a wide array of financial products.

We offer many financial products that are exit strategies for an existing MCA.

  • Line of credit
  • Real estate loan
  • Term loans
  • SBA loans

and more.

A Business Owner’s Guide to MCA Loans

If you’re a business owner, and need financing, then we can help you get short-term capital. Sometimes, it might be possible to leverage your credit card merchant account to get funding. merchant cash advance doesn’t have a lengthy approval process, or the strict credit requirements, that are usually required for a traditional term loan. In fact, merchant cash advances aren’t technically a loan – rather, they’re a cash advance – based on the credit card sales of a business. Small businesses who want to avoid lengthy red tape can apply for a merchant cash advance, and have a cash advance deposited into their accounts fairly quickly. This is why so many people love MCA loans. Most MCA providers look at risk and credit criteria differently than traditional bankers. MCA loan providers look at your daily credit card receipts, and daily bank deposits, in order to determine if the business can pay back the funds in a timely manner.  Rates on merchant cash advances can be higher, and usually are higher, than other financing options. Depending on your company and your margins, getting an MCA loan can be cost prohibitive. It’s critical you understand the terms you’re being offered so you can make informed decisions.

How MCA loans work

An agreement is made between the small business owner and the MCA lender regarding amount, payback, holdback, and the terms. Once an agreement is made, the advance is transferred to the business owners bank account in exchange for a % of your future receivables. Each day, an agreed upon % of your daily receipts are withheld to pay back the MCA. This is called a holdback in the MCA loan world. It will continue until the advance is paid back in full. Repayment is usually based on a % of your daily balance in your merchant account. The more transactions and business you do, the faster you’re able to repay the MCA loan. If you act for credit card withholding, then the faster/slower your business goes – it impacts how fast you’ll be able to repay the MCA loan. This means during times of slow business, the business payback is relative to your incoming cash flow.

Repayment of the MCA loan 

Businesses that use a merchant cash advance typically back 20-40%, or more, of the amount borrowed. This is called the factor rate. There’s a difference between the holdback amount (the amount a business pays everyday) and the repayment amount for the entire MCA loan. For example, you could have a holdback of 15%, and have a repayment of 30% on the amount borrowed. It’s super important for business owners to understand this.

  • The MCA loan holdback % is based on the amount of funds a business owner gets
  • The MCA loan holdback % is based on how long it will take to pay back the money
  • The MCA loan holdback % is based on how big your monthly credit card sales are

How to know if an MCA loan is right for your business

When does it make sense to take an MCA loan? MCA is an option when your business needs IMMEDIATE access to capital, needs to take advantage of an opportunity, has a special marketing opportunity, etc. Credit requirements are less stringent, and this means getting an MCA loan is easier and faster.

The difference between an MCA loan and a traditional loan

Navigating the financial waters and owning a small business is tricky business. This article discusses the difference between MCA loans and traditional term loans. When your business needs capital, you may think about getting a bank loan. Here’s the issue! Traditional bank loans are difficult to qualify for. When you when you want to build on land, build a house, start a business, etc, you go to a bank. When you apply for a business loan, you provide the necessary documents, and if you’re approved – the bank will give you a lump sum of cash in exchange for monthly payments over a period of time. Depending on the term of the business loan, it can then be categorized as a short term or long term loan.

Long Term Loans

Long term loans are loans with a repayment period longer than a short term loan. Repayment for long term business loans can be anywhere from 5 years, to a much longer period of time. Approvals for long term loans are harder to come by, because you have to deal with strict qualifying standards. Most likely, you’ll have to put up collateral. The bank can also limit the amount of loans the business can take in the future. Also, your business has to be in good standing, and have financial statements to prove it. You also have to have a good personal credit score.

Long term loans are great for business owners with a stable credit history, and are looking to expand. In addition to the longer repayment term these loans offer, the loans offer higher dollar amounts. They also have lower interest rates than short term loans. The SBA is a great source of funding for long terms, and low interest loans. The great thing about SBA loans, in contrast to MCA loans, is they are backed by the federal government. If you default, the federal government is responsible for paying back 85% of it.

Short Term Loans (MCA Loans)

Most small business owners go with short term loans, even if they’re just starting out. Short term loans are structured to provide immediate funding. Short term loans are for usually a smaller amount, with significantly higher interest rates. Short term loans are usually used to capitalize on an immediate opportunity, and have a shorter payback period. Traditional short term loans rely heavily on your personal credit and might require you to put up collateral if you’re going through a traditional financing institution. There are alternative financing sources for small business owners other than traditional banks.

Difference between short and long term business loans

Short term loans should be used for working capital needs, i.e. pay for inventory, marketing, payroll, etc. In other words, you need to use the loan to pay for things that generate revenue FAST.

Long term loans are used for expansion, growth, and other initiatives that help you in the long term. For example, initiatives that aren’t DIRECTLY tied to revenue generation, that need a longer payback period, in order to soften the blow of the larger fixed monthly payments.

Secured Loans vs Unsecured Loans

The reason banks love collateral is because it’s a safety – security net – for the bank. If you want banks, and traditional lenders, to lend you money, they might require that you pledge a piece of real estate, or some other collateral, in order to guarantee you’ll repay the loan. If you default on the loan, the bank has the authority to seize the assets or property you pledged to repay the loan. When you pledge collateral against a loan, it means the loan is “secured.” It means the bank is securing itself in case you default on the loan. On the other side, you have unsecured loans. Unsecured loans don’t require the borrower to put up collateral. They are based on your credit score, and slightly – based on the relationship you have with the lender. Since you aren’t providing the lender with any assets/property, they are considered high risk. MCA loans are an example of high risk, high reward, loans. Their reward comes from charging high interest rates. Although you’re not putting up any collateral, you might be required to sign a personal guarantee. A personal guarantee means you’re responsible for the repayment of the loan. If you sign the PG, you’re responsible. Long term loans are usually secured. Short term loans can, or may not, be secured, depending on your credit score, relationship with the bank, etc. Lines of credit work in this manner as well.

Lines of Credit

These are a subcategory of short term business loans. They are similar to a credit card. Lines of capital are great for working capital. They are great for inventory purchases, operating costs, etc. Unlike a loan where you have to reapply once you use up the funds, a line of credit is revolving.

MCA Loans

Merchant cash advances aren’t loans. MCA loans give you with a lump sum, upfront, but instead of monthly installments, a cash advance is given based on a % of your future sales.

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