If your business is currently repaying a merchant cash advance (MCA) and struggling with high daily payments, you’re not alone. Many business owners find themselves trapped in expensive MCA agreements that drain their cash flow and limit their ability to grow. Fortunately, there’s a solution: merchant cash advance refinancing.
We’ve helped countless business owners escape the cycle of high-cost advances through refinancing. In this guide, we’ll walk you through everything you need to know about MCA refinancing, from understanding how it works to determining if it’s the right move for your business.
What Is Merchant Cash Advance Refinancing?
Merchant cash advance refinancing is the process of replacing your existing MCA with a new funding agreement that offers better terms. This could mean a lower factor rate, reduced daily payments, extended repayment period, or all of the above. The goal is to improve your cash flow and reduce the overall cost of your funding.
You can think of it similar to refinancing a mortgage. When interest rates drop or your financial situation improves, you might refinance your home loan to get better terms. MCA refinancing works on the same principle – you’re replacing an expensive funding agreement with a more manageable one.
The refinancing process typically involves working with a new provider who pays off your existing advance and issues you fresh funding under improved terms. In many cases, you’ll also receive additional capital on top of what’s needed to pay off your current balance, giving you working capital while simultaneously improving your repayment structure.
If you need a fast merchant cash advance or want to refinance your MCA, contact us today to get started!
How Merchant Cash Advance Refinancing Works
1. Evaluate Your Current Position
Before pursuing refinancing, you need to understand your current situation. Gather documentation on your existing MCA, including the original agreement, current balance owed, daily payment amount, and remaining term.
Then, calculate how much you’re actually paying. Multiply your daily payment by the number of business days remaining in your term to understand your total obligation. This gives you a baseline for comparison when evaluating refinancing offers.
2. Assess Your Qualification
Refinancing providers will evaluate many of the same factors as your original MCA provider, but they’ll also consider your payment history on the existing advance. Consistent, on-time payments strengthen your application significantly.
Review your current monthly credit card sales, bank statements, and credit score. If these have improved since your original advance, you’re in a strong position to negotiate better terms.
3. Shop for Refinancing Options
Don’t accept the first refinancing offer you receive. Different providers have different criteria and rates, so comparing multiple options is essential for finding the best deal.
This is where working with a company like Llama Loan becomes valuable. We connect you with multiple refinancing providers simultaneously, allowing you to compare offers side by side and choose the option that best fits your needs.
4. Review and Compare Offers
When evaluating refinancing offers, look beyond just the factor rate. Consider the holdback percentage, total payback amount, any fees involved, and whether you’re receiving additional capital.
You’ll want to calculate the true cost difference between your current advance and the refinancing offer. If you’re receiving extra capital, factor that into your analysis – don’t just compare the total payback amounts without accounting for the additional funds you’re receiving.
5. Complete the Application
Once you’ve selected a refinancing provider, you’ll need to submit documentation similar to what you provided for your original advance. This typically includes recent bank statements, processor statements, identification, and details about your existing MCA.
The application process for refinancing is often faster than your original application because you’ve already been vetted by a previous provider. Many refinancing deals can close within days, so reach out to us today to get started!
6. Payoff and Transition
When your refinancing is approved, the new provider will pay off your existing advance directly. You’ll receive any additional capital, and your new payment structure will begin.
Make sure you receive written confirmation that your original advance has been paid in full. Keep this documentation for your records to avoid any confusion or disputes down the road.
Requirements for MCA Refinancing
1. Good Payment History
The most critical factor in refinancing approval is your payment history on your current advance. Providers want to see that you’ve made consistent, on-time payments. If you’ve missed payments or had frequent NSF incidents, refinancing becomes more challenging.
We recommend that business owners maintain at least three months of solid payment history before pursuing refinancing. This demonstrates reliability and significantly improves your chances of approval with better terms.
2. Improved or Stable Sales
Refinancing providers want to see that your business is stable or growing. If your sales have declined significantly since your original advance, you may not qualify for better terms—or may not qualify at all.
Ideally, your monthly credit card processing volume should be equal to or greater than when you first obtained your MCA. Sales growth puts you in the strongest position for favorable refinancing terms.
3. Time in Current Advance
Most refinancing providers prefer that you’ve been paying on your current advance for at least three to six months. This gives them enough payment history to assess your reliability and demonstrates commitment to your obligations.
Some providers will refinance earlier if your situation warrants it, but expect more scrutiny and potentially less favorable terms if you’re seeking to refinance very soon after obtaining your original advance.
4. Sufficient Remaining Balance
Refinancing typically makes the most financial sense when you have a substantial balance remaining on your current advance. If you’re near the end of your repayment term with only a small amount left, the costs and effort of refinancing may outweigh the benefits.
As a general rule, refinancing becomes attractive when you have at least 40-50% of your original advance amount still outstanding.
5. Current Business Documentation
You’ll need to provide updated financial documentation, including recent bank statements (typically three to six months), merchant processing statements, tax returns, and identification. Having these documents organized and ready speeds up the refinancing process.
Costs and Fees Associated With Refinancing
Payoff Amount
The primary cost of refinancing is the amount needed to pay off your existing advance. This is typically your remaining balance, though some MCA agreements include prepayment penalties or fees. You’ll want to review your original contract carefully to understand any early payoff provisions.
New Advance Fees
Your refinancing advance will come with its own set of fees, which may include origination fees, underwriting fees, administrative fees, and other charges. These fees are typically deducted from your advance amount, just like with your original MCA.
Factor Rate
Your new factor rate determines how much you’ll ultimately pay back. Even a seemingly small difference in factor rates – for example from 1.40 to 1.25 – can translate to thousands of dollars in savings on a $50,000 advance.
Potential Broker Fees
If you work with a broker to secure refinancing, they may charge a fee for their services. However, reputable companies like Llama Loan don’t charge business owners – we’re compensated by the lenders, so our comparison and matching services are free to you.
Why Consider Refinancing Your MCA?
Reduce Daily Payment Burden
The most common reason business owners refinance is to lower their daily payment amounts. If your current MCA is taking 20% of your daily credit card sales, refinancing might reduce that to 10% or 12%, immediately improving your cash flow.
Lower Your Overall Cost
Refinancing can significantly reduce the total amount you’ll pay back. If your current advance has a factor rate of 1.45 and you refinance to a rate of 1.25, you’ll save thousands of dollars over the life of the advance.
The savings become even more substantial when you consider the compounding effect. Lower daily payments mean more revenue stays in your business, which can lead to growth that further improves your qualification for even better terms in the future.
Access Additional Capital
Many refinancing deals include extra funding beyond what’s needed to pay off your existing balance. This means you can consolidate your current debt while simultaneously securing additional working capital for business needs.
We’ve seen business owners use this additional capital to purchase inventory, hire staff, launch marketing campaigns, or upgrade equipment – all while improving their overall repayment terms.
Extend Your Repayment Timeline
If your current MCA has you on a six-month repayment schedule that’s straining your cash flow, refinancing might extend that to nine or twelve months. The longer timeline spreads out your payments and makes them more manageable.
Consolidate Multiple Advances
If you’re juggling multiple merchant cash advances – a situation known as “stacking” – refinancing can consolidate them into a single payment. This simplifies your finances and often results in lower overall costs than maintaining multiple separate advances.
Signs You Should Refinance Your MCA
Your Cash Flow Is Suffering
If your daily MCA payments are preventing you from covering essential business expenses like payroll, rent, or inventory, it’s time to consider refinancing. Your funding should support your business, not strangle it.
Your Business Has Grown
If your sales have increased significantly since you took out your original advance, you likely qualify for better terms now. Stronger sales performance makes you a more attractive candidate to lenders, which translates to lower factor rates and better conditions.
We’ve worked with businesses that secured their first MCA during a slow period and then experienced substantial growth. When they refinanced six months later with much higher sales volumes, they received dramatically better terms.
You Have Multiple Stacked Advances
Managing multiple MCAs with different payment schedules and holdback percentages creates administrative headaches and can result in excessive daily deductions from your sales. Refinancing to consolidate these advances into one streamlined payment makes financial management easier.
You Qualified With Poor Credit Initially
If your credit score has improved since you first obtained your MCA, you’re likely eligible for better terms. Even a 50-100 point increase in your credit score can make a significant difference in the rates you’re offered.
Your Industry Outlook Has Improved
Lenders consider industry risk when setting terms. If conditions in your industry have improved since you secured your original funding, you may qualify for better rates based on reduced perceived risk.
Is Refinancing Your MCA Right for Your Business?
Merchant cash advance refinancing can be a powerful tool for improving your cash flow and reducing funding costs, but it’s not always the right choice. Refinancing makes sense when your daily payments are straining your cash flow, your business performance has improved since your original advance, or you’re managing multiple stacked advances.
However, if you’re near the end of your repayment term, haven’t established a solid payment history, or your sales have declined significantly, refinancing may not provide meaningful benefits.
We’ve worked with thousands of business owners to evaluate their refinancing options. The key is understanding your complete financial picture and comparing the true costs and benefits of refinancing against your current situation and alternative options.
If you’re struggling with your current merchant cash advance, don’t wait until you’re in crisis mode. Reach out to Llama Loan today for a free consultation. We’ll review your situation, explain your options, and help you determine whether refinancing or another funding solution is the right path forward.