You can refinance a merchant cash advance (MCA) in five steps. Once you’ve confirmed the payoff amount, you can find loans you’re eligible for, shop lenders, apply, and then accept the loan terms and confirm the payoff of the merchant cash advance.
Refinancing a merchant cash advance can provide lower monthly payments to help with your business cash flow. It can also reduce the frequency of the required payments. What refinancing an MCA will not do, however, is save you money on interest charges because an MCA charges its fees upfront.
Continue reading for more details on how to refinance a merchant cash advance.
Step 1: Request the Payoff Amount on the Merchant Cash Advance
The first step is to contact your merchant cash advance provider to determine the payoff amount. Be sure to verify if or when the payoff amount would change. Knowing your payoff amount is important because you’ll want to ensure you get a loan sufficient enough to cover it.
If your MCA provider can’t immediately respond to your request for a payoff amount and you want to continue to the next steps, review your MCA agreement to get a ballpark estimate.
For example, an MCA for $100,000 with a factor rate of 1.50x would mean you’d have to pay a total of $150,000, assuming no other fees or charges have been assessed by the lender. Based on what you’ve paid so far, you can take the difference between those two figures to estimate the loan amount you’d need.
Step 2: Consider Available Loan Options & Check Your Eligibility
Paying off an MCA early won’t save you on interest charges since all of the fees are essentially charged upfront. As a result, you should consider refinancing for a loan that gives you other benefits like lower monthly payments, longer repayment terms, and the stability of fixed payments.
Here are some loan options you can use to refinance your MCA.
Loan Type | Best For |
|---|---|
Term Loan | Business owners seeking long repayment terms or a single lump sum of funds |
Small Business Line of Credit | Businesses wanting short-term financing and the ability to draw additional funds as needed |
Personal Loan for Business Purposes | Borrowers looking for an unsecured loan who have good personal credit |
Home Equity Loan (HELOAN) or Home Equity Line of Credit (HELOC) | Borrowers with at least 20% home equity and good personal credit |
Term Loan
Typical Rates & Terms | |
|---|---|
Interest Rates | 6% to 15% |
Loan Amount | Up to $5 million+ |
Repayment Term | 7 to 10 years |
Repayment Schedule | Daily, weekly, monthly |
Funding Speed | 1 to 3 days |
Typical Qualifications | |
Credit Score | 620+ |
Business Revenue | $100,000 to $250,000 annually |
Time in Business | 6 months to 2 years |
Term loans issue a lump sum of funds that can often be used for any business-related purpose. Lenders may sometimes issue term loans as working capital, equipment financing, or business acquisition loans depending on the loan’s allowable uses and target audience.
- Working capital loan: This type of loan allows for funds to be used for many business purposes such as covering payroll expenses, inventory costs, rent, and debt payments.
- Equipment financing: Equipment financing can allow you to acquire business-related equipment. This can include vehicles, machinery, furniture, and more. Financing options typically include an equipment loan and an equipment lease.
- Business acquisition loan: Funds from this type of loan can allow you to purchase another company. Depending on the terms of your loan agreement, you may also be able to use the funds to temporarily help with cash flow issues to ensure a successful launch of the new business.
National Funding is one provider we recommend if you’re looking for a term loan. It made our list of the best working capital loans thanks to its dedication to offering high levels of customer service. It also has flexible qualification requirements as you can be eligible with a credit score as low as 600 and just six months in business.
Small Business Line of Credit
Typical Rates & Terms | |
|---|---|
Interest Rates | 10% to 15% |
Loan Amount | Up to $300,000 |
Repayment Term | 12 to 24 months |
Repayment Schedule | Weekly, monthly |
Funding Speed | 1 to 3 days |
Typical Qualifications | |
Credit Score | 640+ |
Time in Business | $100,000 to $250,000 |
Business Revenue | 6 months to 2 years |
With a small business line of credit, you’ll have the flexibility to draw funds as needed. It’s a revolving credit line that allows you to draw more funds as you pay down the balance. Since interest is only charged on your outstanding balance, many business owners use this option to cover cash flow shortages or unexpected expenses temporarily.
While a small business line of credit typically has a short repayment term similar to that of an MCA, it can still help your monthly cash flow depending on the interest rate and repayment term you get. Additionally, you can sometimes get fixed payments on a credit line, something that’s more difficult to achieve on an MCA.
If you’re considering this option, we recommend a provider like Bluevine, which leads our roundup of the best small business lines of credit due to the combination of its rates and loan terms. It also offers funding in as little as 24 hours.
Personal Loan for Business Purposes
Typical Rates & Terms | |
|---|---|
Interest Rates | 5% to 15% |
Loan Amount | Up to $100,000 |
Repayment Term | 5 to 7 years |
Repayment Schedule | Monthly |
Funding Speed | 1 to 7 days |
Typical Qualifications | |
Credit Score | 660+ |
40% to 50% | |
If you’re having trouble getting approved for a business loan, a personal loan can be a good alternative. These loans place a large emphasis on your personal credit history, making them easier to get if you have blemishes on your business credit.
Depending on the lender you choose, there may be restrictions on how you can use the loan proceeds. For example, some personal loans may only allow for the purchase of vehicles or business equipment. Others may require you to use funds for landscaping, medical, or other specialized purposes. If you are considering a personal loan to refinance your MCA, you should ensure that it’s allowed by the lender you choose.
Upstart is a provider we recommend for personal loans. It’s a lender that tops our list of the best personal loans for business funding due to its competitive rates, long repayment terms, and easy qualification requirements. It also has funding speeds as fast as one business day.
HELOAN or HELOC
Typical Rates & Terms | |
|---|---|
Interest Rates | 8% to 12% |
Loan Amount | $500,000 |
Repayment Term | 10 to 30 years |
Funding Speed | 30 days |
Typical Qualifications | |
Maximum Combined Loan-to-Value (CLTV) | 90% |
Credit Score | 660+ |
DTI Ratio | 45% to 50% |
If you own your own home and have sufficient equity in the property, you could get a HELOAN or HELOC. Many lenders will require you to have at least 20% equity in the property as determined by an appraisal of the home. The amount of outstanding liens against the home will then determine the maximum loan amount you can get.
As a simple example, let’s say a lender will issue a loan up to 90% of your home’s value. If your home is appraised at $1 million, you can have home loans against the property up to a maximum of $900,000. If you have an existing mortgage of $700,000, the difference of $200,000 is the maximum HELOAN you can get.
To review your HELOAN or HELOC options and compare rates from multiple lenders, check out LendingTree.
Step 3: Shop Lenders
After deciding on a loan program that suits your needs, you’ll need to find a lender that offers that financing option. We recommend shopping rates with multiple lenders as it will give you a more complete picture of the best available rates and terms for your circumstances. For details on what to look for in a lender and commonly required documentation, visit our guide on how to get a small business loan.
Step 4: Review & Accept Loan Terms
When the lender completes its review of your loan application, it will issue a loan decision. The best outcome is that you are approved at the terms you requested initially. In other cases, the lender may issue a counteroffer, indicating that while it can issue you some financing, the rates and terms differ from what you may have requested. Worst-case scenario: The lender will issue a denial indicating it can’t offer you any type of loan.
If you are approved for a loan, it’s important that you review the terms and conditions carefully. If you didn’t get the terms you wanted, ask to see what options you have. In rare cases, lenders may overlook items during the loan review process that could help you qualify for more beneficial terms and pricing.
At a minimum, you should double-check the following items before accepting a loan offer:
- Interest rate
- Loan fees (such as prepayment penalties, early closure fees, annual fees, or account inactivity fees)
- Repayment term
- Repayment schedule (daily, weekly, biweekly, monthly)
- Prohibited uses of loan proceeds
Step 5: Confirm the Payoff of the MCA
Once you have been approved and accepted the terms of your new loan, you’ll need to verify the payoff of the MCA. Depending on the loan or lender, funds may be deposited directly into your bank account. In that case, you’ll need to make the final payment to the MCA provider directly. In other instances, you may be able to notify your new lender to send funds directly to the MCA provider.
In either case, it’s important that you ensure the merchant cash advance is fully satisfied with no remaining balance or outstanding fees.
Benefits of Refinancing a Merchant Cash Advance
If you’re looking to improve your business cash flow or adjust the payment schedule of your debt, refinancing an MCA can be the right move for your business. Below are some of the major benefits you could get by conducting a refinance of a merchant cash advance.
Lower Monthly Debt Payments
Merchant cash advances typically have repayment periods between 24 and 36 months. By refinancing to another loan with a longer repayment term, you can lower your minimum payment amounts to help boost your business cash flow. Be aware, however, that longer loan terms may mean you’ll be paying more interest charges over time.
Fixed Payment Schedules
Repayment amounts on a merchant cash advance are variable because they’re typically based on a percentage of your company’s credit card sales. If you want a consistent fixed payment amount, you can refinance to a fixed interest rate loan. Doing so can provide the added benefit of making it easier to forecast your company’s financial performance.
Reduce the Frequency of Debt Payments
Merchant cash advances generally require daily repayments. Depending on when your business receives payments and other income from clients and customers, these frequent repayments could strain your company’s cash flow. Refinancing an MCA into another loan type, by comparison, may have less frequent repayments such as weekly, bi-weekly, or monthly.
Frequently Asked Questions (FAQs)
Merchant cash advances charge fees upfront regardless of when you pay off the loan, so your savings will be minimal, if any. You can review your MCA agreement to determine the total fees you agreed to repay when you initially accepted the loan.
You can use almost any type of loan to refinance and pay off a merchant cash advance. Common financing options include working capital loans, business credit lines, personal loans, and home equity loans.
You can refinance a merchant cash advance as quickly as one to five business days. The total length of time will depend on the type of loan you’re applying for, the lender you’ve selected, and the complexity of your company’s credit and finances.
Bottom Line
To refinance a merchant cash advance, you can get a new loan and then use those funds to pay off the MCA. It’s essentially replacing your merchant cash advance with a new loan. Doing this can help your business’s cash flow by lowering the amount and frequency of your payments. Since you have many loan options, you should shop rates with multiple lenders to ensure you get the best financing option for your business.
