Why You Shouldn’t Refinance Merchant Cash Advance With Another MCA

Refinancing a merchant cash advance (MCA) with yet another MCA may seem like a quick fix. However, it’s a costly approach that could lead to overwhelming debt. Many business owners urgently need cash and see MCA refinancing as a short-term lifeline.

This practice can often lead to inflated costs, compounding fees, and debt stacking which can suffocate a business’s cash flow. When faced with the high cost of MCA debt, it’s important to understand why refinancing with another MCA isn’t the answer and explore more sustainable solutions.

The Real Cost to Refinance a Merchant Cash Advance

Merchant cash advances are a popular financing tool for businesses needing quick capital. Unlike traditional loans, MCAs don’t come with standard interest rates. Instead, businesses receive a lump sum upfront and repay the lender by giving up a percentage of daily credit card or debit sales. This often continues until they have paid back significantly more than they borrowed.

Refinancing a merchant cash advance may be beneficial, especially when cash flow is tight. However, removing a new MCA to cover an old one does not eliminate debt; it simply reshuffles it, often with financial consequences.

Refinancing an MCA effectively rolls the existing debt into a new advance. It’s often at a rate higher than the initial advance, especially if the lender considers the refinance high risk. This process can amplify the debt dramatically, with business owners commonly owing much more than anticipated.

When an advance provider refinances an existing MCA, they may include any remaining balance on the old advance in the new one. For example, if you owe $30,000 on the first MCA and need an additional $20,000, your new advance may merge both figures. This applies a new factor rate on the total $50,000, which drives up the cost significantly.

The “Double Fee” Trap in MCA Refinancing

One of the hidden pitfalls of refinancing a merchant cash advance is the “double fee” practice. Unlike traditional loans, MCAs are structured around fixed payments that do not decrease even if the debt is paid off early. When a business takes on a second MCA to cover the first, the remaining balance on the original MCA is treated as part of the new advance. This compounds the original fees and creates a double burden for the business.

Consider a business that owes $30,000 on its first MCA with a factor rate of 1.35. It takes an additional $20,000 to refinance, now totaling $50,000 under a new factor rate of 1.45. The resulting debt can swell to a $72,500 payoff on what started as a $30,000 debt. This effectively makes the MCA refinance far more expensive than anticipated.

In this scenario, refinancing with an additional MCA creates a hidden cost that can quietly dismantle a business’s finances over time. It locks owners into a cycle of costly repayments and little cash flow relief.

Refinancing with an MCA Can Lead to Debt Stacking

Business owners seeking relief from high MCA payments often turn to another MCA in hopes of extending the repayment period. Unfortunately, this approach often leads to a practice called “debt stacking,” where multiple MCAs are stacked on top of one another.

In the worst cases, businesses are left with two or more MCAs. Each has high repayment demands, draining cash flow and leaving almost no room for daily operational expenses.

Debt stacking can quickly spiral out of control as each MCA provider demands a portion of your credit card sales. This can strip businesses of daily income and make covering the most basic costs nearly impossible. This aggressive repayment structure can trigger a cycle of refinancing and stacking that drives some business owners into financial distress. As repayment demands grow, it’s not uncommon for businesses to fall behind.

Why MCA Debt Refinancing Options Outside of MCAs Are Necessary

Refinancing merchant cash advance debt through an MCA debt refinancing plan or MCA debt consolidation service can offer a far more practical path forward. With debt consolidation, business owners may qualify for longer-term repayment plans at lower rates. It helps them regain control of their finances without the pitfalls of stacking and double fees.

Alternative options such as bank or credit union loans, often come with significantly lower interest rates and structured repayment terms that do not stack or charge on a double-fee basis. Refinancing MCA debt with an SBA-backed loan or a term loan from a traditional lender can bring payments down to manageable levels for qualifying businesses. This approach also provides breathing room for growth and operational expenses.

How We Help Businesses Escape MCA Debt Without Adding New Loans

We’ve seen the toll MCA debt stacking takes on small businesses at Value Capital Funding. We are here to help clients avoid these pitfalls. Our team specializes in MCA debt relief by providing pathways to financial stability that don’t rely on risky refinancing options.

Our approach is straightforward: we work to reduce your MCA payments through consolidation and restructuring without new loans, minimum credit scores, or collateral.

Don’t let refinancing with another MCA put your business at risk. Contact us to learn more about sustainable options that can help free your business from high MCA debt without creating new challenges.