Refinance a merchant cash advance: moving from daily deductions to a term loan

A new lender advances enough to pay off the outstanding balance on your existing advance or advances. The providers confirm settlement, the deductions from your card terminal or bank account stop, and you repay the new lender on its terms, usually fixed monthly payments over a longer period. It is the same idea as refinancing a business loan, with some features specific to MCAs.

• Businesses with one or more MCAs or revenue-based advances whose daily deductions are squeezing cash flow.
• Companies that have grown since taking the advance and now qualify for cheaper, longer term finance.
• Owners who want one predictable monthly payment instead of several variable ones.
• Businesses that need further funding but cannot add another advance on top of existing ones.

Most MCAs are priced with a fixed fee or factor rather than interest that accrues day by day. The British Business Bank's guide to merchant cash advances notes that businesses cannot benefit from interest savings through early repayment, because the fees are fixed. In practice that means:

• The settlement figure is often the full remaining amount repayable, not a reduced balance.
• Some providers offer an early settlement discount, but it is at their discretion or set out in the contract.
• You need a written settlement figure, valid to a specific date, from each provider before a new lender can complete.

Refinancing can still make sense even with no discount, because the benefit is in the repayment pattern and in stopping further stacking, not always in a lower total cost.

Stacking means taking a new advance while an earlier one is still being repaid. Each provider takes its percentage, so the share of daily takings going out can climb quickly. Many MCA contracts restrict taking further revenue-based funding without consent, and breaching that can have consequences under the agreement. The British Business Bank also warns that frequent deductions can affect a business's cash flow and, if payments are not met, put it at risk of being unable to service its debt. Our article on the impact of merchant cash advances covers the wider pros and cons.

Compare the total cost of carrying on with your current advances against the total cost of the new loan, including arrangement fees and any early repayment terms. A longer term lowers the monthly payment but can raise the total cost. Do not refinance into a facility you are less likely to keep up with than the one you have.

If you have MCAs alongside other loans, a wider business debt consolidation loan may bring everything together. Businesses with an online lender's loan in the mix may find our guide to consolidating an iwoca loan useful. If the business trades with other firms on credit, invoice finance can replace revenue-based funding as a source of working capital.