Why and How You Should Refinance Your Merchant Cash Advance

Jack Jeter
Mar 29 · 5 min read

You’ve often heard the saying that fast cash usually amounts to expensive cash. And rarely does that saying ever prove inaccurate — particularly for merchant cash advances. And if you’ve been at them for a while, you’ll find that you need to find ways to refinance your merchant cash advance at some point.

Reasons for availing a merchant cash advance, in the beginning, are varied, and none of them are bad. Perhaps it had been the quickest way to acquire much-needed money for the cash flow back then. Maybe it was your only money-borrowing option too.

It may be ideal and convenient then, but using it as a continuous source of financing in the long-run isn’t ideal. At its very core, a merchant cash advance is an expensive financing option.

Why should you refinance your merchant cash advance?

Below, we can find the reasons why you should work on doing a refinance of your merchant cash advance:

High Daily/Weekly Payments on Short-term MCAs

You can pay off your merchant cash advance in less than a year. But it all depends on the percentage of your daily credit card sales that get sent to the lender. To some, that can sound like a great deal. But a closer look at it can actually reveal more cons than pros.

Yes, the cash you acquire is capable of helping you out with your cash flow problems. But remember that lenders take a percentage out of your daily credit card sales. And when your repayment terms are a high percentage, this can prove to be difficult catch-up work.

If you’re struggling with regular monthly expenses and are constantly in a bid to grow your business, those high percentage repayments can’t be good for your business.

Avoid Ongoing Debt Cycles

Merchant cash advances are considered short-term financing options for a reason. They are meant to be last-resort solutions. So don’t put your utmost trust on it unless you desperately need to.

An MCA is typically set up with the intention of getting paid off in less than a year. This usually results in high repayment rates. And unfortunately, if you’re a struggling borrower, this might result in you falling into a cycle of constant renewal.

Every business owner knows that a slew of constant debts with high repayment requirements is not good for the business.

Only Helps Your Credit Score a Little

The lack of a credit requirement is part of the reason why a merchant cash advance is attractive and an option for small business owners.

However, it’s good to note that this type of business financing isn’t going to do much for good credit scores in the future. This is because the majority of MCA companies can’t report to business credit bureaus. And in order to avail better credit options in the future, you will need good credit scores.

Fast Cash is Expensive

Merchant cash advance is fast cash. And in all technicality, an MCA just borrows money against credit card receivables.

First and foremost, the MCA lender provides you with a lump sum. You have to pay that lump sum back through the percentage of your business’ daily credit card sales. Plus, annual percentage rates can be anywhere between 60% or 200%.

An MCA Shouldn’t be a Permanent Financing Source

A merchant cash advance was never meant to be a permanent solution from the very beginning. Eventually, every business owner needs to face the fact that it’s time to search for other financing options; preferably cheaper or more practical ones.

One such example of said financing options is online business loans or bank loans. Either of the two is significantly cheaper than a merchant cash advance. What’s also great about online lending industries is that you have lots of options to look at choose from. There’s a line of credit, a term loan, etc.

Plus, this gives you a chance to refinance your merchant cash advance. This can help you get rid of debts bit by bit.

How should you refinance your merchant cash advance?

It’s known that banks offer the lowest rates for small business loans. But this isn’t a likely option for you yet. Think about it. If you had to turn to a merchant cash advance, then you probably would not have qualified for a bank loan in the first place.

On the other hand, online lending industries are far more lenient. You can start there for merchant financing, but make sure you clarify that your loan purpose is to refinance debt.

Check and see whether your potential lender reports to small business credit bureaus — like Equifax, Experian, etc. Because to refinance your merchant cash advance could mean boosting your credit score. Just be sure to meet all payments in full every time so your small business can qualify for a business loan with lower rates and more flexible terms in the future.

Plus, taking out a loan from online lenders to refinance your merchant cash advance has lower rates. This can give your business the breathing room it needs to stabilize your cash flow and pay debt more efficiently.

You’ll be glad to know that online business lenders are known for having faster turnaround times than most traditional banks. The likelihood of receiving funds in less than a week or in a couple of hours is very high.

When you’re approved, you can now use the money to pay off your merchant cash advance. Time to set your eyes on building a business credit to avoid dangerous situations the next time around.

The Takeaway

This is not to say that you should totally avoid a merchant cash advance. This is just to warn you about the cons you’re looking at when you get one.

In any case, finding a way to refinance your merchant cash advance isn’t difficult. It just takes patience and sufficient research to find the right one. So, as a business owner, do your own brand of research. Don’t hesitate to surf the internet for the best rates and terms that would suit your business’ situation.

And as a last piece of advice, don’t put the refinancing off. Don’t delay; because the sooner you get out of an expensive financing option, the better health your business will be in.

Jack Jeter

Written by

Jack Jeter is skilled in technology and all things financing. An experienced President, he has a stellar history of working in the financial services industry.

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