How To Refinance a Merchant Cash Advance in 5 Steps
This article is part of a larger series onBusiness Financing.
A merchant cash advance (MCA) is an expensive form of small business credit, so small business owners should refinance an MCA as soon as possible. To do that, you have to determine how much you owe, check your credit, choose a lender and loan product, and apply for a loan.
There are many other types of business financing that are much more affordable, andLendiooffers a variety of options. So, before moving forward with amerchant cash advance, visit Lendio’s website to see if you qualify for a more affordable business financing product.
1. Determine the Remaining Amount Owed
One of the most significant drawbacks to MCAs is that the entire fee for borrowing the funds is charged upfront. Because those fees are built into the balance owed, it limits the amount you can save by paying the MCA off early. However, you can lower your monthly payments by getting a better rate with another form of financing. Calculate how much of the advance plus fees remain before looking for a new lender and loan product.
2. Check Your Credit Score
Many businesses end up with MCAs because low credit keeps them from qualifying for other, more affordable types of credit. So, know your credit score before beginning the application process. If your credit has gone up since getting the MCA, there’s a good chance you can qualify for more affordable financing. Even if your credit is still poor, otherbad credit loan optionsare more affordable than MCAs.
3. Choose a Lender & Loan Product
Now that you know what you owe on your MCA and your credit score, you can begin the shopping process. There are manyalternatives to merchant cash advances. Don’t get an MCA to pay another MCA off as you’ll be hit with upfront fees again and be left with the same expensive form of credit.
Loan alternatives for MCAs include:
- Short-term business loans:These have a quick application process, simple repayment plans, fast funding, and a lower annual percentage rate than MCAs.National Funding是一个很好的选择short-t吗erm business loans due to its willingness to work with borrowers with lower credit scores.
- Business lines of credit: These allow a business to take draws against an established credit limit as needed rather than receiving the full amount of the loan upfront. Lenders charge interest on the amount used, and borrowers must repay it in installments.Bluevinehas an excellent business line of credit lending products.
- Equipment loans:这些是固定的从银行融资,clol滚球 雷竞技an be used to either purchase or refinance vehicles and heavy equipment. The purchased collateral secures the loan.Smarter Finance USAis an excellent choice for equipment loans for businesses that can put at least 10% down.
- Home Equity Line of Credit (HELOC) or Home Equity Loan (HEL): HELOCs and HELs use the equity in your property―usually a primary residence―as collateral for the loan. These funds can then be used to refinance your MCA.LendingTree, as well as its excellent online marketplace, is a good choice for both HELOCs and HELs.
4. Apply for Your Loan
Once you have chosen a lender and lending product, you can apply for yoursmall business loan. Most lenders allow you to apply through their websites in a matter of minutes, with decisions often coming within 24 hours. Funding might take a few more days, but the funds are either deposited into your account or wired directly to pay off your MCA.
5. Pay Your Merchant Cash Advance Off
Once approved for your new financing, you can pay your MCA off. Once done, keep an eye on your merchant accounts to make sure the daily payments that had been taken by the MCA provider stop. If it fails to stop taking payments, be sure to contact its team right away to dispute the charges.
Why You Should Refinance a Merchant Cash Advance
MCAs are costly forms of credit and should be used only as a last resort. So, the sooner you can refinance them into more affordable financing, the sooner your business can improve both its short and long-term financial stability.
- MCAs are very expensive:With annual percentage rates (APRs) greater than 100%, MCAs are one of the most expensive forms of credit available.
- MCAs have high daily payments:With holdback percentages as high as 30% of your daily credit card receipts, MCAs can significantly hamper your cash flow. Keeping up with working capital expenses with MCAs constricting your budget can be challenging.
- MCAs hurt cash flow:Not only do the high holdback percentages hurt your cash flow, but MCAs also tend to have short repayment terms—usually less than 12 months. Refinancing debt at lower rates over a longer-term lowers your monthly payment, which allows you to keep up with your working capital expenses.
Bottom Line
Merchant cash advances are an extremely expensive form of credit. If possible, refinance your MCA into other types of business financing with lower rates and better terms. By following the steps listed above, you can get your business out from under the financial weight of an MCA and improve the financial stability of your company.Lendiohas an online marketplace that will match you with a lender to help you refinance your merchant cash advance. Check out its website for more information or to get the refinancing process started.