Should You Refinance Your MCA?

Should You Refinance Your MCA?
Caitlyn Rose
on March 23, 2020
Read in 1 min

At some point during the lifetime of virtually all small businesses, an influx of cash will be needed. When the need for a loan arises, most entrepreneurs look first to traditional banks. Unfortunately, it can be challenging for small businesses to get approved for these loans.

Furthermore, they often require time, collateral and a willingness to jump through several bureaucratic hoops. One alternative that works well, particularly if you have a reliable stream of credit card transactions, is a merchant cash advance.

What’s A Merchant Cash Advance?

With a merchant cash advance (a.k.a. MCA) the business owner pays the lender a percentage of future sales in exchange for an infusion of cash right now. Applying is easy and uncomplicated, and cash can be in the hands of the entrepreneur in a matter of a few days.

However, MCAs have a downside as well: The frequent payments you are required to make can become burdensome. And with annual interest rates between 60 – 200 percent, this may not be the best value over the long term.

Alternatives to Refinancing Your Loan

Fortunately, there is hope for entrepreneurs who are weighed down by their MCA’s. If this is you, consider refinancing your merchant cash advance with a small business loan through an online lender. The past few years, we’ve seen the rise of online lenders who can consolidate your existing debt into a loan that can help you keep costs down.

Online financing companies can provide you with more capital, a longer loan term, and lower interest rates (between 7 – 13%.) In addition, by getting a loan from a lender who reports to the major credit bureaus, you’ll build your credit score just by paying on time. With an MCA, you won’t build your credit score up the same way.

Merchant cash advance loans can be very useful, providing fast money with fewer restrictions than those set forth by traditional banks. Nevertheless, they can become highly costly and detrimental over the long term, placing undue financial stress on a small business.

If you feel like your MCA isn’t working out anymore, take some time to look into refinancing from an online lender. Imagine what a relief it would be if your interest rates were lowered and you were given more time to pay off your loan. With that renewed freedom, you could get back to your original priority: building your small business.

Caitlyn Rose Finance Journalist

Caitlyn is a business consultant and writer with an intimate understanding of business finance.

An entrepreneur at heart, she supports small local businesses whenever she can.