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Can You Refinance a MCA Loan?
If you’re a small business owner who took out a merchant cash advance (MCA) loan, you may be wondering if you can refinance it to get better terms. An MCA loan provides quick access to capital by allowing you to borrow against your future credit card sales. But the high fees and daily repayment structure can make MCA loans expensive. Refinancing to a lower rate loan may help reduce your costs.
How Do MCA Loans Work?
Merchant cash advance lenders provide money quickly in exchange for a percentage of your future credit card and debit card sales. Here’s a quick rundown:
- You receive a lump sum of capital upfront
- The lender takes a fixed percentage of your daily credit card sales as repayment
- There’s no set repayment schedule – you pay back the advance as you make credit card sales
- Fees are deducted from the total advance amount, often ranging from 15-60%
The convenience and speed of MCA loans comes at a price. The equivalent annual percentage rates often exceed 100%, making them a very expensive financing option.
Can You Refinance an MCA Loan?
Yes, it is possible to refinance an MCA loan. However, options are limited compared to refinancing a traditional small business loan or line of credit. Here are a few key points about MCA loan refinancing:Prepayment PenaltiesMost MCA loans include prepayment penalties if you pay off the balance early. These fees are usually a percentage of the outstanding balance, such as 10-20%. You would need to factor this cost into any refinancing.Some MCA lenders may waive prepayment penalties if you refinance with them directly. But this usually involves taking another advance with high fees.Eligibility RequirementsBecause MCA loans are repaid from business credit card receipts, refinancing requires you to have an ongoing revenue stream via credit card sales. If your business has changed significantly or you no longer accept credit cards, it will be difficult to refinance.Most refinancing options also require a minimum time in business, such as 2 years. Your credit score will also be checked, with a minimum score around 600-650 needed.Higher Rates Than Other Loan TypesEven if you do refinance your MCA loan, the new loan will likely have a higher rate than other small business financing options. MCA loan refinancing interest rates often exceed 20% APR.By comparison, a small business line of credit will have rates from 10-18% usually. An SBA loan can have rates under 10%.
Refinancing Comparison of MCA Loan vs. Other Loan Types
Here is a comparison of how refinancing an MCA loan stacks up against getting other types of financing:
| Merchant Cash Advance Refinancing | Business Line of Credit | SBA Loan | |
|---|---|---|---|
| Interest Rates | Typically 20%+ | 10-18% | Under 10% |
| Fees | 5-15% of loan amount | $0-$500 origination fee | 1-3% origination fee |
| Repayment Term | 4-18 months | Revolving credit line | 10+ year term loans |
| Time to Funding | Days to weeks | Days to weeks | Weeks to months |
As you can see, MCA loan refinancing still comes at a premium cost compared to other small business lending options. The benefit is mainly speed – you can usually refinance an MCA loan in days or weeks.
Alternatives to MCA Loan Refinancing
Here are a few alternatives to consider if your goal is to find an affordable way to repay your merchant cash advance loan:
Consolidation Loans Taking out a consolidation loan allows you to pay off your MCA loan and combine other business debts into one monthly payment. Banks and online lenders offer consolidation loans with lower rates than MCA refinancing, often starting around 7-12% APR.
Business Line of Credit Since MCA loans repay from credit card sales, replacing it with a line of credit tied to your business checking account can break the daily repayment cycle. Lines of credit have lower rates and can give you more flexibility.
Working with Your MCA Provider Some MCA lenders allow you to adjust the daily repayment percentage taken from your credit card sales. If your revenues have fallen, asking for a lower payment rate may help provide some relief.
Debt Management Programs Financial advisory firms like Delancey Street specialize in negotiating with MCA lenders on your behalf. They can often get fees reduced or waived and work out alternative repayment plans. This avoids expensive refinancing.
Key Takeaways About MCA Loan Refinancing
Refinancing a merchant cash advance loan is possible, but comes with limitations compared to refinancing other types of small business financing. Here are some key takeaways:
- Expect to pay prepayment penalties to the original MCA lender
- Refinancing interest rates will still be high, usually 20%+ APR
- Requirements include ongoing credit card revenues, 2+ years in business, and 600+ credit
- Alternatives like consolidation loans may provide lower cost options
If you need help assessing your options for repaying an MCA loan, reach out to a business debt relief company for a free consultation. Specialists can review your situation and provide recommendations tailored to your needs.
About Delancey Street
Delancey Street partners with small business owners to improve their financial situation. Our debt relief programs combine debt consolidation and negotiations to help clients repay their debts faster and at lower cost.In addition to merchant cash advance help, we assist with various business debts including:
- Business lines of credit
- Equipment financing loans
- Commercial mortgages and business real estate loans
- Business credit cards
Our approach includes:
Free Consultation
- We will conduct an in-depth review of your business finances to gain clarity on the full scope of debts owed. This allows us to provide specific advice tailored to your unique situation.
Client Agreement
- Once we settle on a debt relief strategy, we will formally define the terms of services in a client agreement clearly detailing the process, expectations, and fees involved
Debt Management Services
- Our advisors then take over communications with your creditors to negotiate better repayment terms on your behalf
- We also set up customized debt repayment plans matched to your budget and business revenues
Ongoing Support
- You get access to a dedicated account advisor for ongoing support
- We monitor payments and provide regular progress reports
- Our experts help anticipate issues before they arise
If you have any questions about business debt relief or repaying an MCA loan, feel free to call us at 212-210-1851 for a free consultation. Our advisors understand the MCA industry well and can walk you through all of your options.