Small Business Blog | Swish Funding

Can You Refinance a Merchant Cash Advance?

SBA Loans

Can You Refinance a Merchant Cash Advance?

A merchant cash advance (MCA) is a common financing option for small and medium-sized businesses that need immediate funding. Unlike traditional loans, an MCA provides a lump sum in exchange for a percentage of future credit card sales or receivables. While MCAs can offer quick relief in financial emergencies, they often come with high fees and strict repayment terms—raising the question: Can you refinance a merchant cash advance?

Understanding Merchant Cash Advances

Before considering refinancing, it’s important to understand how MCAs work. Businesses receive a lump sum up front and repay it as a percentage of daily credit card sales. Since repayment is tied to sales volume, this structure can offer flexibility during slower periods—but may become expensive when sales increase. MCAs are typically treated as sales of future receivables, not loans.

Is Refinancing an MCA Possible?

Refinancing usually involves replacing current debt with a new loan that has better terms, such as lower interest rates or longer repayment periods. However, due to the unique structure of MCAs, refinancing isn’t always straightforward.

Options for Refinancing or Restructuring

  • Negotiate with the MCA Provider: Some providers may be open to modifying terms or offering a settlement for early repayment. While not traditional refinancing, this can reduce monthly obligations.
  • Consolidate with New Debt: Businesses may apply for a conventional loan or credit line to pay off the MCA. These options typically offer better terms.
  • Use Alternative Lenders: Some lenders specialize in refinancing business debt, but may hesitate with MCAs because they’re not technically loans.
  • Refinance with a Line of Credit or Term Loan: Funds from these sources can be used to repay an MCA, converting costly advances into more manageable debt.

Risks and Considerations

  • Early Repayment Fees: Many MCA contracts include steep penalties for early payoff, which can offset refinancing benefits.
  • Financial and Credit Impact: Additional debt may improve cash flow short-term but harm long-term financial health if not managed carefully.
  • Contractual Restrictions: Some MCA agreements restrict refinancing or early repayment, so review the terms closely.

Exploring New Funding Options

Whether seeking growth capital or managing existing debt, businesses can explore several strategies:

Restructuring Debt

Debt restructuring involves renegotiating existing terms to make repayment more manageable. Options include:

  • Loan Modification: Adjusting payment terms or interest rates through lender negotiation.
  • Debt Settlement: Offering a lump sum payment less than the outstanding balance.
  • Debt Consolidation: Combining multiple debts into a single loan with more favorable terms.

Benefits:

  • Improved cash flow
  • Reduced financial stress
  • Potential to avoid default or bankruptcy

Challenges:

  • Possible credit score impact
  • Complex negotiations
  • Potential fees or penalties

Turning Debt into New Capital

Replacing old debt with new funding can help stabilize finances and support growth. Options include:

  • Refinancing: Taking out a new loan with better terms.
  • Equity Financing: Raising funds by issuing shares to investors.
  • Lines of Credit: Using revolving credit to consolidate and manage debt.
  • Asset-Based Financing: Using business assets as collateral for new funding.

Advantages:

  • Lower interest rates
  • Longer repayment periods
  • Improved liquidity for operations or growth

Considerations:

  • Additional fees or costs
  • Changes to ownership structure (if equity is used)
  • Eligibility requirements

Strategic Refinancing for Growth

Businesses planning to expand can explore funding options like:

  • Term Loans or Equipment Financing: Ideal for purchasing assets or expanding operations.
  • Venture Capital or Private Equity: Equity investment for high-growth businesses.
  • Government Grants or Subsidies: Non-debt funding options for specific industries or projects.

Get Expert Advice

  • Evaluate your financial health—review cash flow, debt load, and repayment ability.
  • Consider economic factors and interest rate trends.
  • Consult with financial advisors to choose the best strategy for your situation.

Bottom Line

While MCAs may not qualify for traditional refinancing, businesses can explore a range of strategies to reduce or manage their obligations. Options include negotiating with the provider, consolidating with new loans, or tapping into alternative credit sources. Success requires careful planning, cost analysis, and expert support to ensure the chosen path aligns with long-term goals.

Swish Funding

, ,