By: Claudia Stefano
February 9, 2023
2:46 am
Running a company involves all kinds of challenges. To keep your business growing and everyday transactions going smoothly, you must enable an uninterrupted cash flow.
Keeping your small business afloat often requires taking loans and cash advances. Because merchant cash advances are known for high-interest rates and high daily, weekly, and monthly payments – you have no other option but to take another merchant cash advance to service the first one. By doing so, you enter the vicious circle – borrowing multiple times without the prospect of getting rid of debt.
To escape the rat race of perpetual borrowing, you can consolidate various merchant cash advances and loans by transforming them into one payment. Consolidating your loans and MCAs helps ease the financial burdens, enabling you to go through a crisis without compromising your business operations.
A working capital line of credit is one of the most common consolidation solutions. It works by joining several merchant cash advances and other loans into one payment, enabling you to bridge the gap between income and expenses. That way, companies avoid cash flow problems, easing the burden on their balance. Working capital lines of credit do not involve daily and weekly payments, nor do they use your credit sales percentage.
Reverse loans (reverse consolidation) is the opposite of traditional business loan. The lender deposits the entire amount helping you cover your monthly payments. In return, they take small portions of the deposited amount as their repayment.
Another way to repay your merchant cash advance is a short-term business loan. It helps you eliminate your MCA debt, leaving you with only one payment – the one with which you repay a business loan. A typical term is one to three years, while interest rates range from 9% to 45%.
Taking additional merchant cash advances to help you pay off the other (smaller) MCA is also an option. It consolidates your debt, transforming it into one payment. However, you must be careful (and disciplined) because multiple MCAs got you into the vicious cycle of borrowing in the first place.
If all other options fail – a bad credit business loan is the last resort. Because of a low credit score, most banks will not be willing to do business with you. That is why you must turn to non-traditional lenders, using loans with short terms (one to eighteen months) and high-interest rates (12% – 45%).
In addition to enabling you to handle your debt with a single credit line, merchant cash advance consolidation has other benefits, too:
Consolidation helps you turn multiple monthly payments into one or two payments a month from the same working capital line of credit. Instead of paying daily, weekly, bi-weekly, and monthly installments, you will make fewer payments. Instead of thinking about when is your next remittance due, you can focus on everyday business operations.
Failure to service your loan payments on time results in overdraft charges and damages your credit score. With a low credit score, you will not be able to take loans from traditional lenders, compromising your future business outlook. Consolidation lets you pay off your debts with one payment line, avoiding repayment problems and bad credit scores.
Consolidating multiple loans and MCAs means a lower interest rate and longer repayment term resulting in lower monthly installments.
Unlike bank loans and MCAs, consolidation enables you to negotiate a payment plan with your lender. Seek to work out a plan that best suits your business needs.
Running a small business means a stable cash flow is crucial for staying afloat. With consolidated debt (lower monthly payments, longer-term), you can easily plan your budget, freeing up cash for everyday transactions.
Consolidation involves the so-called blended interest rate. As a blend of interest rates from all your loans, it is usually lower than individual rates.
Merchant cash advance and loan consolidation has downsides too. Here are the most common:
Not every small business is suitable for debt consolidation. Your business must have minimum monthly revenues and a positive credit score. Otherwise, the lender will not even consider your application.
A loan consolidation typically involves new borrowing. You can choose between taking another merchant cash advance, reverse loan, short-term business loan, or bad credit business loan. When taking a new loan to pay off the other, ensure you know what you are doing. Create a concise repayment plan. Otherwise, you will find yourself trapped in a vicious debt cycle.
Although blended interest rates can be lower than the combination of individual rates, you can also see higher rates with consolidated loans. Paying off debt with a long repayment period (including fees) can be more expensive than the existing loans.
To apply for a merchant cash advance consolidation, you must have the following documents:
Regroup Partners is a Florida debt law firm helping businesses navigate finances while performing day-to-day operations.
We know borrowing and re-borrowing have led you to where you are now.
To help you break the vicious debt cycle, our experts will create unique solutions that fit your needs.
We offer plans to help you overbridge the financial gap and continue your thriving business.
Reach out at (954) 234-2300 or email us at legal@regrouppartners.com to see how we can help.
We are a team of financial specialists. We help you with your debt and begin working on day one. Our team of debt and financial specialists will help consolidate, restructure or settle your debt.
Regroup Partners provides business debt solutions to businesses of all sizes that aid in the mission to ultimately ensure peace of mind to business owners in a time of distress.
