For businesses that don't have great credit and that can't qualify for conventional or SBA loans, a merchant cash advance (MCA) can be a useful tool. An MCA can help the business get access to cash to cover expenses or to expand.
Sometimes, however, a business might take out more than one merchant cash advance . Then it could end up paying different instant payday loans Kingsport interest rates and fees for each. Plus, it will have to deal with different payment schedules for each.
A merchant cash advance consolidation is an option that lets you roll up all of those advance payments into one. Ideally, an MCA consolidation has the potential to cut down on what you're paying in interest and fees.
What Is a Merchant Cash Advance?
Not every business qualifies for a traditional bank or SBA loan. Perhaps it hasn't been in business long enough to be eligible, or maybe it doesn't meet the credit requirements. That's when a merchant cash advance may be useful.
An MCA is not a loan, but rather an advance on future sales. To determine eligibility, MCA providers may not rely heavily on criteria like time in business and/or credit scores, but instead consider revenues. That may make it easier for some businesses to get than other types of financing.
When you get an MCA, you receive a lump sum payment. Typically, MCAs express the interest they charge as a factor rate (a decimal figure) rather than as a percentage and prepaying them would not reduce the amount of money you owe, but it's usually not an option anyway. As your business sells its products or services, repayment is automatically debited daily or weekly until the balance (including factor rate and other fees) is paid off.
The downside is that, when it comes to conventional vs. SBA loans vs. merchant cash advances, MCAs tend to have much higher fees and interest than the other two, making them a costly financing option. This is because businesses that don't qualify for traditional or SBA loans may be viewed as more of a risk to lenders. Typically, lenders try to mitigate that risk by charging borrowers more for the privilege of having access to capital.
What Is Merchant Cash Advance Consolidation?
A business may take out multiple merchant cash advances over time. As a result, the company may end up with multiple repayment schedules and pay different factor rates for each.
A merchant cash advance consolidation rolls multiple MCAs into one advance or loan with one repayment schedule and one factor rate. Ideally, that merchant cash advance consolidation loan would have a lower interest rate than the business was paying on the multiple advances.
When to Consider Merchant Cash Advance Consolidation
If your business has taken out multiple merchant cash advances, you may be able to save money with a merchant cash advance consolidation loan. You may also be able to simplify repayment by having a single automatic debit rather than multiple payments.
If you run the numbers and it looks like you can save money and avoid inconvenience, it may be a good time to consider a merchant cash advance consolidation.
What to Consider with Merchant Cash Advance Consolidation
Before applying for a consolidation loan, look at what you're currently paying in interest and what you'd qualify for with a new loan. There's probably no sense in taking on a new consolidation loan unless that interest is lower than what you're currently paying.
Also look at the repayment period and what your payments might be. A shorter repayment period means bigger payments that you might not be able to afford. But a longer period would offer smaller payments, albeit more of them. Extending the time frame, however, will likely mean that you end up paying more in total.