A merchant cash advance (MCA) is an expensive form of short-term financing we typically recommend only as a last resort. Due to how it is structured, you will be unable to save on interest charges or fees by paying it off early. However, refinancing can help your company’s cash flow by lowering the amount and frequency of its monthly debt payments.
We’ll guide you on how to refinance a merchant cash advance. Major steps include identifying your payoff amount, considering your available loan options, and verifying your eligibility.
To help get the best financing option, you can work with a loan broker like Lendio, which pairs you with a dedicated funding specialist who can match you with a loan best suited to your business circumstances. It also has a network of over 75 lenders, which can provide you with more loan options to choose from.
Step 1: Determine the Payoff Amount on the MCA
The first step to refinance a merchant cash advance is to determine the funds needed to pay it off. This needs to be done so that you can get a sufficiently large loan amount. The easiest way to get this payoff figure is to contact your MCA provider.
You can also find out your remaining balance by reviewing the terms of your MCA loan agreement. For example, an MCA for $100,000 with a factor rate of 1.50x means that you would have to pay a total of $150,000 to satisfy the loan. Based on how much you’ve currently paid and any applicable fees, you can take the difference between the figures to determine the loan amount you 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 to a loan that gives you other benefits. Some common examples include lowering your monthly payments, extending your repayment term, and giving you the stability of a fixed payment.
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 that want short-term financing and the ability to draw additional funds on an as-needed basis |
Personal Loan for Business Purposes | Borrowers looking for an unsecured loan and with good personal credit |
Home Equity Loan (HELOAN) or Home Equity Line of Credit (HELOC) | Borrowers with at least 10% home equity and good personal credit |
Term Loan
Typical Rates & Terms | |
Estimated Annual Percentage Rates (APR) | 6% to 30% |
Loan Amount | Up to $5 million-plus |
Repayment Term | 7 to 10 years |
Repayment Schedule | Daily, weekly, and monthly |
Funding Speed | 1 to 3 days |
Typical Qualifications | |
Credit Score | 620-plus |
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 under a different name depending on their allowable uses and target audience. Common examples of term loans can include the following:
- 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. Learn more about the differences in our guide on equipment financing.
- 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 six months’ time in business.
Small Business Line of Credit
Typical Rates & Terms | |
Estimated APR | 8% to 30% |
Loan Amount | Up to $300,000 |
Repayment Term | 12 to 24 months |
Repayment Schedule | Weekly and monthly |
Funding Speed | 1 to 3 days |
Typical Qualifications | |
Credit Score | 640-plus |
Time in Business | 6 months to 2 years |
Business Revenue | $100,000 to $250,000 |
With a small business line of credit, you’ll have the flexibility to draw funds on an as-needed basis. 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 to temporarily cover cash flow shortages or unexpected expenses.
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 | |
Estimated APR | 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-plus |
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 it 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, while 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 vs HELOC
Typical Rates & Terms | |
Estimated APR | 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-plus |
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 10% 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 see what options you might have for a HELOAN or HELOC, you can check out LendingTree. It is a marketplace that allows you to see rates from multiple lenders.
Step 3: Choose a Lender & Submit a Loan Application
In choosing a lender, consider what characteristics you must have and which ones you can do without. These can be things like hours of operation, rates, fees, and flexibility in qualification requirements. While these may vary from one lender to another, different types of lenders tend to have similar characteristics. We cover this in greater detail in our guide on how to get a small business loan.
Before making any final decision on a lender, we recommend that you shop rates and loan programs with several different providers. This will help give you an idea of the available types of loans available, a range for rates and fees, and other loan terms to expect.
Once you’ve identified a lender, you’ll want to submit a formal loan application. If you can’t decide on any one provider, know that you are allowed to submit applications to multiple lenders. Just be mindful of any requirements to pay application fees or other costs. Most applications can often be submitted online, but in some cases, you may have to call or visit a local branch to do so.
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 initially requested. In other cases, the lender may issue a counteroffer, indicating that while it can issue you some form of financing, the rates and terms are different from what you may have requested. In a worst-case scenario, the lender will issue a denial indicating it is unable to 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, or monthly)
- Prohibited uses of loan proceeds
Step 5: Confirm Payoff of the MCA
Once you have been approved and have 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 to your bank account, in which 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.
When You Should Refinance a Merchant Cash Advance
If you’re running into cash flow issues, you should consider refinancing a merchant cash advance. Refinancing should not be done if you only want to save money on interest charges. This is because an MCA essentially charges all the borrowing fees upfront, so you won’t be able to save money as you would be able to with a traditional amortized loan.
Refinancing an MCA, however, can help your business cash flow and should be considered if you want to:
- Have fixed payment amounts: Payments on an MCA vary based on a percentage of your revenue. If you want to have more predictable payments, you can refinance to a loan with a fixed interest rate or other method that offers a fixed minimum payment amount.
- Reduce your monthly payment amounts: MCAs typically have a short repayment period that rarely exceeds 24 to 36 months. By refinancing to a loan with a longer repayment period, you can reduce the amount of your minimum payments.
- Reduce the frequency of required payments: MCAs often require repayments to be made daily. Making frequent payments can cause cash flow issues depending on when you receive income from sales or other revenue sources. Refinancing to another loan can provide you the option to make payments on a less frequent timeline.
Merchant Cash Advance Alternatives
An MCA should only be used as a last resort due to how expensive it is. However, it can be a useful financial tool if you are having trouble getting approved for other loans and are in dire need of funding. We talk more about this in our guide on what a merchant cash advance is, where we also cover if it is right for your business.
Before you get an MCA, we recommend considering our list of the best merchant cash advance alternatives. Many of the providers and brokers we’ve recommended there have financing options that are less expensive, cater to businesses with a wide range of eligibility criteria, and offer more flexible loan terms.
Frequently Asked Questions (FAQs)
The amount of money you can save will be limited due to the fact that MCAs charge fees upfront. In other words, when you get an MCA, you agree to pay back a certain amount even if you pay the balance early.
Refinancing an MCA can be difficult because you’ll need to meet a lender’s requirements to get a new loan. Common criteria can include time in business, credit score, and annual business revenue.
Refinancing an MCA can help with business cash flow issues. This can be done by lowering the minimum required payments, reducing the frequency at which payments must be made, and refinancing to a loan that has fixed minimum payment amounts.
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 and doing this can help your business cash flow by lowering the amount and frequency of your payments. Since you’ll have many loan options to choose from, you should shop rates with multiple lenders to ensure you get the best financing option for your business needs.