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BY Value Capital Funding

October 2, 2023

Solving the MCA Puzzle: How to Refinance Merchant Cash Advances and Leverage Lines of Credit

Merchant Cash Advances (MCAs) can be a lifeline for small businesses in need of quick cash. However, they often come with high costs and relentless repayment schedules. If you’re a small business owner struggling with MCAs, refinancing, and leveraging a line of credit (LOC) can be a powerful way to improve your cash flow and financial flexibility.  In fact, MCA debt refinancing is a proven way to reduce financial strain on small businesses suffering with high daily or weekly repayments. 

What is an MCA?

An MCA is a short-term financing option that provides businesses with a lump sum of cash in exchange for a percentage of future sales. MCAs are typically repaid daily or weekly, and they can have very high fees and interest rates.

The challenges of MCAs

MCAs can be risky and expensive, and they can be difficult to repay. Here are some of the common challenges that businesses face with MCAs:

  • High costs: MCAs typically have high fees and interest rates, which can add up to a significant cost over the life of the loan.
  • Daily or weekly repayments: MCA repayments are typically taken directly from your daily or weekly bank balances, which can strain your cash flow.
  • Short terms: MCAs typically have short terms, which can make it difficult to repay the loan in full.

How to refinance MCAs

MCA debt refinancing using FDIC bank loans will help you to reduce your costs, extend your repayment term, and improve your cash flow. To refinance your MCAs, you’ll need to find a lender that offers MCA refinancing loans. These loans typically have lower interest rates and longer repayment terms than MCAs.

How to use a line of credit (LOC)

An LOC from an FDIC bank or nationally insured credit union is a revolving line of credit that allows you to borrow money as needed. LOCs can be a great way to improve your cash flow and flexibility. You can use an LOC to pay for unexpected expenses, cover seasonal fluctuations in sales, or finance growth initiatives.

How to refinance MCAs and leverage an LOC

Refinancing your MCAs and leveraging an LOC can be a powerful way to improve your financial situation. Here’s how it works:

  1. Refinance your MCAs: Find a lender that offers MCA refinancing loans and refinance your MCAs at a lower interest rate with a longer repayment term.
  2. Apply for an LOC: Apply for an LOC with a bank or credit union. LOCs typically have lower interest rates than MCAs and more flexible repayment terms.
  3. Use your LOC to pay off your MCAs: Use your LOC to pay off your MCA loans. This will free up your cash flow and give you more flexibility to manage your business expenses.
  4. Use your LOC for other business needs: Once you’ve paid off your MCAs, you can use your LOC for other business needs, such as financing growth initiatives or covering unexpected expenses.

The step-by-step process

Here is a step-by-step process for refinancing your MCAs and leveraging an LOC:

  1. Assess your MCA debt and business financials. Before you can start refinancing your MCAs, you need to assess your current debt situation and business financials. This will help you to determine how much money you need to borrow and what kind of loan terms you can qualify for.
  2. Find the right lender for MCA debt refinancing. There are a number of lenders that offer MCA debt refinancing loans. When choosing a lender, compare interest rates, fees, and repayment terms. You should also consider the lender’s reputation and customer service.
  3. Applying for and securing an LOC. Once you’ve chosen a lender, you can apply for an LOC. The application process will vary depending on the lender, but you’ll typically need to provide financial information about your business.
  4. Combining MCA refinancing and LOC for improved cash flow. Once you’ve been approved for an LOC, you can use it to pay off your MCAs. This will free up your cash flow and give you more flexibility to manage your business expenses.
  5. Tips for a successful transition

Here are some tips for a successful transition from MCAs to a healthier financial setup:

  • Be prepared to provide financial documentation. When you’re refinancing your MCAs or applying for an LOC, you’ll need to provide financial documentation about your business. This includes things like your tax returns, bank statements, and profit and loss statements.
  • Negotiate with your MCA lenders. Before you refinance your MCAs, try to negotiate with your lenders to get a lower interest rate or longer repayment term. This can help to reduce your monthly payments and improve your cash flow.
  • Work with a financial advisor. If you’re not sure how to refinance your MCAs or leverage an LOC, consider working with a financial advisor. A financial advisor can help you to assess your financial situation, develop a plan

Avoid Common Pitfalls

Here are some common pitfalls to avoid when refinancing your MCAs and leveraging an LOC:

  • Don’t underestimate the costs of refinancing. Refinancing can have its own costs, such as closing fees and origination fees. Be sure to factor these costs into your decision.  Still, many save a lot of money.
  • Don’t take on more debt than you can handle. Just because you have access to more credit doesn’t mean you should use it all. Be sure to only borrow what you need to make your business successful.
  • Don’t use your LOC for personal expenses. LOCs are intended for business purposes only. Using your LOC for personal expenses can lead to financial problems in the future.

Entrust Your MCA Debt Negotiations to Value Capital Funding

At Value Capital Funding, we understand the challenges that small businesses face with MCAs. We can help you to refinance your MCAs, get the best possible terms, and improve your cash flow.

We offer a variety of services to help businesses get out of MCA debt, including:

  • MCA debt refinancing
  • Line of credit solutions
  • MCA Debt Restructuring

We work with businesses of all sizes and industries. We are committed to helping our clients get back on their feet and achieve their business goals.

Contact us today to learn more about how we can help you. We are here to help you solve your MCA puzzle and get your business back on track.