Getting a merchant cash advance is literally one of the fastest ways to get money for cash flow, and other expenses. Whatever the case, there’s a reason you opted for a merchant cash advance.
- Bad credit prohibited you from traditional lenders
- You had an emergency and needed funding fast
- You weren’t in business long enough for traditional lenders
Whatever the reason, your merchant cash advance MAY NOT be ideal. Here’s some major points on why and how, you might refinance your merchant cash advance.
They are expensive!
Here’s a great article from another website that talks about the cost of merchant cash advances. Bottom line, they aren’t cheap, and they aren’t helping you build up your credit history either! With a merchant cash advance a lender gives you a lump sum of money, and in return, you pay back a % of your future receivables for a period of time until you’ve paid back the lump sum and a FACTOR FEE. The fee can be anywhere from 1.1 to 1.5, but this isn’t the same as an APR. You could be end up paying more than 100% APR!
Short Term MCA’s have high daily and weekly payments
Depending on the % of your future daily sales being taken, this can be toxic and harmful to the long term success of your business. The cash infusion a merchant cash advance provide is great, and is supposed to help your cash flow situation, but the higher % repayment terms can take a huge bite out of your daily credit card sales. It can be hard to keep up with the repayment, and it can be a struggle to meet your monthly expenses and keep growing the business.
They don’t help your credit
Lack of credit might have led you to get a merchant cash advance, but this type of financing won’t help you build your credit. Merchant cash advance companies can’t report to the credit bureaus because they aren’t structured as lenders, federally speaking.
If you aren’t careful, you enter an endless cycle of debt
Merchant cash advances should be a last resort, and a one time solution. But many people continue relying on them, and keep borrowing more and more money. Many borrowers struggle to repay their loans. The cycle of renewal after renewal cripples a business, similar to a how a payday loan works in the personal finance world. In the long run, this isn’t going to help your finance, or your business – if you don’t exit the cycle. It’s important you don’t borrow money just because it’s offered to you.
How you can refinance the merchant cash advance
Start with trying to qualify for an online term loan, and make it clear to the lender your purpose is to refinance existing business debt. Try to qualify for a loan that comes with a monthly payment, especially if they’ll give you a longer term loan, maybe a 1-3 year term loan. Chances are the monthly payment will be lower than what you’re currently paying on the merchant cash advance which will give you some breathing room and give you smoother cash flow.
Also, take a look at whether your potential term loan lender will report to the small business credit bureaus. This can help you boost your credit rating by making all of your payments help you build a credit profile.
In the future, this can result in lower rates and better terms. Online business lenders traditionally have faster turnaround times than traditional, brick and mortar, bankers. Don’t be surprised if you get approved and funded in the same week. We recommend you use this money to pay off the merchant cash advance.
Another way of refinancing your merchant cash advance is by getting an asset backed loan. With an asset backed loan, you use your real estate as collateral for a new loan. It’s not uncommon for asset backed loans to have an APR of 9-12%. Depending on where you get the loan, the term of the loan can be anywhere from 1 to 3 years.
Most lenders will be comfortable refinancing your existing merchant cash advance via the proceeds of an asset collateralized loan since they know the asset guarantees the loan.