Editor's choice: Lendio business loans
- Network of over 300 lenders
- 10 types of financing available
- Positive reviews of customer service
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
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.
There are two main ways to refinance a merchant cash advance:
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.
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.
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.
Refinancing a merchant cash advance might be expensive. But there are several ways your business can benefit.
While refinancing can make repayments more manageable, there are a few drawbacks to consider.
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.
Learn about what will happen to your home loan when you die and how to avoid any nasty situations with some pre-planning.
A 101 guide covering the types of mortgage loans every homebuyer should know.
With $1,400 or more coming to most Americans’ wallets, here’s how you can fund your car down payment and save money on your loan.
Bearish ETFs can earn you profits when the stock market is down. Learn more.
Low interest rates set this connection service apart.
A business line of credit is a useful tool. But as a startup, you may not qualify for the best interest rates with most lenders. Explore your options — and alternatives — for flexible funding as a new business.
From making a business plan and getting insurance to marketing and setting your prices — here’s how to start your own cleaning business.
You can now calculate your payroll expenses based on gross income instead of net profit. Here’s how it works.
Reduce your debt by around 30% after fees — but only if you can stick with the program. Here’s how.
Here’s where to get financial help for yourself and your business if you’ve been affected by the storm in February 2021.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.