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Merchant cash advance refinancing

It can help make repayments more manageable, but you won't save in the long run.


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When your business needs cash fast, a merchant cash advance might be your only option. But often those daily repayments can be hard to keep up with. If your business is struggling to stay afloat, you may want to consider refinancing. Though beware: It can sometimes make an already expensive loan even more costly.

How to refinance a merchant cash advance

There are two main ways to refinance a merchant cash advance:

  1. Take out a business loan to pay off your balance.
  2. Take out another merchant cash advance to pay off your current debt.

Both offer a chance to make your repayments more manageable, but they won’t help you save.

That’s because merchant cash advances don’t work like traditional business loans. Instead of paying back the loan plus interest that adds up over time, they come with a fixed fee. Lenders come up with your total loan cost by using a factor rate — a number typically between 1.14 and 1.3 — that it multiplies by the amount you borrow. Factor rates sometimes go even higher.

So, if you took out a $10,000 merchant cash advance at a factor rate of 1.2, you’d pay back $12,000 no matter how long it takes. Your loan cost doesn’t change if you refinance.

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Name Product Filter Values Loan amount APR Requirements
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OnDeck small business loans
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Fundera business loans
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LendingClub business loans
$5,000 – $500,000
12.15% to 29.97%
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Monevo business loans
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Method 1: Traditional business term loan

A term loan is one of the most common ways to refinance any type of debt, including merchant cash advances. Here, your business applies for a term loan that you use to pay off the balance of your merchant cash advances. Your business is then responsible for paying off this new loan.

Term loans can help make your daily or weekly repayments more manageable by spreading them out over a longer period of time. Most merchant cash advances have terms of three months to a year, whereas term loans often start at around three years. However, the longer your business takes to pay off the loan, the more you’ll pay in interest. And this is on top of the relatively high fee you paid on your merchant cash advance.

Business loan providers also usually have credit, revenue and time-in-business requirements. If your business is less than a year old, makes less than $100,000 a year or you have poor credit, you might not be able to qualify for the most competitive rates — making it even more expensive. But if you’re really struggling with your merchant cash advance repayments, then even a short-term business loan could potentially help.

Method 2: Another merchant cash advance

Another common way to refinance a merchant cash advance is to take out another one to pay off the current one. You can do this through your current lender or with another merchant cash advance company. Often, you can also apply to borrow more funds in addition to refinancing the debt you currently have. This method might be useful if your business needs even more funds or wants to extend its term and can’t qualify for any other type of financing.

You might want to treat it as a last resort, though, since you’re essentially doubling up on the factor rate. Let’s take a look at an example:

Say your business got an advance of $10,000 at a factor rate of 1.2, meaning you’d owe a total of $12,000. If you decide to refinance that loan after paying off $6,000 at the same factor rate, you’d have to pay $7,200. In other words, the total cost of that merchant cash advance would go up from $2,000 to $3,200.

4 reasons to refinance a merchant cash advance

Refinancing a merchant cash advance might be expensive. But there are several ways your business can benefit.

  1. Lower your monthly repayments. Refinancing your merchant cash advance for a loan with a longer term can help reduce how much your business owes each month.
  2. Improve your business’s credit score. Merchant cash advance companies don’t report repayments to business credit bureaus because they technically aren’t considered loans. Term loan providers do, however.
  3. Make less frequent repayments. Merchant cash advances come with daily repayments, which can make it difficult for your business to grow. Term loans typically come with more flexible monthly repayments.
  4. Make fixed repayments. Unlike merchant cash advances that take a percentage of your daily sales or deposits, term loans usually come with fixed repayments that are easier to predict.

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3 reasons to avoid refinancing

While refinancing can make repayments more manageable, there are a few drawbacks to consider.

  • It’s even more expensive. Since the fee is built into a merchant cash advance, refinancing can’t help you save on the overall cost. And taking out another loan or merchant cash advance means you’ll be paying even more.
  • You might not qualify. Most of the benefits of refinancing only apply if you use a term loan, which your business might not be able to qualify for if it’s not in good financial shape.
  • It could lead to a cycle of debt. Refinancing with another merchant cash advance might start a cycle of debt, where your business has to repeatedly refinance or “roll over” the advance to keep up with repayments. You could end up owing several times more than you originally borrowed.

Bottom line

Merchant cash advances are expensive, and unlike other types of debt, refinancing typically only increases the cost in the long run. However, using a term loan to refinance could be a good option if daily repayments are weighing you down.

To learn more about your options, check out our guide to business loans.

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