Merchant cash advances (MCAs) can keep your business functioning while helping it grow. On the other hand, they can also help you find yourself in a seemingly uncontrollable debt spiral.
Every story of a debt crisis starts with just one simple loan. As time goes on, one loan ends up helping you pay back another loan, on top of the other expenses you need covered. Then, before you know it, you’re buried in debt and can’t see any light at the end of the tunnel.
This cycle applies to MCAs as well.
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Merchant Cash Advances
An MCA is a great way for many small business owners to have a financial lifeline. Business owners often take advantage of them because they’re easy to get. Selling future bank account deposits or credit card deposits for a lump cash payout is a useful mechanism for small-mid sized businesses. This is because they often don’t have the time to prepare all the necessary documents for a business loan. Getting a business loan can take a long time.
Another factor that draws many small-mid-sized business owners to MCAs is the overall lower requirements. MCA lenders are less stringent about credit scores on top of being less stringent with paperwork.
The main problem with MCAs is that they can land you in trouble more easily than most other business financing options would. Quick working capital can come at a cost, as it comes with several fees and typically very high APRs.
Many business borrowers start with one simple MCA, which eats at their working capital. As is the case with many other financing options, many borrowers end up needing more funds in order to make up for the money they’ve lost over time. Thus, one merchant cash advance leads to another and before you know it, you’re stuck.
When Merchant Cash Advances Become Overwhelming
When you end up taking on more debt to pay for previous debts, you are doing something called stacking. Stacking MCAs is one of the easiest ways for a business to enter a downward debt spiral.
MCA providers look at your long-term cash flow. This is because merchant cash advances end up cutting into your daily cash flow. MCA providers typically automatically withdraw a portion of the credit card payments to your business at the end of each day. They then continue doing this until your lump sum is paid back.
Because MCA providers take a cut of your daily profit, they can cause cash flow issues which slowly bog your business down. As time goes on, MCAs will wear on your business and it will become increasingly harder to stay afloat. At some point, your MCA situation will reach critical mass and you won’t be able to sustain your cash flow any longer.
When You Should Consider Consolidating
If you’re reaching what feels like the point of no return, remember that you still have options.
Your different MCAs likely vary greatly when it comes to both interest rates and APRs. When you have several separate MCAs, you’re likely paying quite a lot on a regular basis.
If you’re having trouble keeping up with your MCAs, it’s time to look at efficient options for taking control of the situation. The best of these options is MCA consolidation.
How Merchant Cash Advance Consolidation Can Help
MCA consolidation means taking out a single loan to pay for all your MCA debt. It’s also a well-rounded option that is embraced by indebted businesses and MCA lenders alike.
MCA lenders typically like MCA consolidation loans because they are fairly secured from the lender’s point of view. Repayment on these loans is practically guaranteed through the business’s sales. So, if a business owner decides to consolidate their debts into one larger debt, the lender still gets their money back, including the fees they charge. Because of this, MCA lenders typically have no problem consolidating your debts.
On your end, MCA consolidation is an even better option. First, all of your debts will be combined into one debt, which simplifies your repayment process and gives you a single interest rate. When you consolidate your MCAs, the interest rate, APR, and other fees should always end up cheaper than if you still had multiple MCA debts.
Making multiple daily payments to different merchant cash advance lenders can become confusing. It can become quite easy to miss a payment and get nailed with late fees. Lenders love late fees. They love all the fees, really. With an MCA consolidation loan, you get more peace of mind having just one debt to track and take care of. Perhaps even more importantly, when you have multiple merchant cash advance debts with varying terms, it’s hard to keep track of the amount of money you’re losing to interest, APRs, and all the fees. Consolidating these debts will allow you to have a simple, single loan with one set of terms. Of course, these terms should always end up costing you less.
In the end, MCA consolidation loans simplify your problem and make it easier to pay your debts back. It provides you with mental and financial simplicity, making the repayment process easier and cheaper.
Some Final Advice…
Of course, not all MCA consolidation lenders are equal. To help ensure the best possible results, compare multiple providers of merchant cash advance consolidation loans.
It’s always better to work with lenders that offer MCA consolidation as one of their specialties. In any case, try to find lenders with specific MCA consolidation experience. MCA debt spirals are a pain to deal with, but there’s often a way out, even if you didn’t notice it until now.