Before we talk about Merchant Cash Advance [MCA] Consolidation Loans, let’s talk about what a Consolidation Loan is:
A consolidation loan is used to convert multiple individual payments into one monthly payment, ideally with a lower aggregate interest rate. The goal is to reduce late payments, fines, paperwork and high interest debts with one single payment at a better rate. Consolidation loans for businesses, usually originate at trusted institutions like a bank or credit union.
Consolidation loans are not easy to get. The borrower usually needs to have very good credit or assets to pledge as collateral. Think about it from a bankers’ perspective: Why would a banker lend money just to pay off other creditors, when there is already pressure? They prefer not to because they are looking to lend money to fuel growth and expansion, not to clear up past debts. This is one reason why consolidation loans often look for a co-signer that has good credit in the event there is a default.
Understanding that, let’s look at an MCA consolidation [loan].
Most MCA Consolidation loans are offered by the same industry that offered the MCA’s to begin with. The idea is to offer you one new MCA, which bundles all of the others together. The benefit for the company offering the new “advance” is selling a brand new, higher balance, high interest advance, than they might have had by offering you a single new advance, or declining to fund you altogether. Some consolidation loans will look to attach your real estate as collateral, which now puts your real estate at risk when it might not have been before.
Here is an important question to ask yourself if you are considering an MCA “Consolidation Loan”: Is it really just another MCA loan?
The interest you are paying [factor rate] might be lower than before but it still might be so high that it kills your future cash flow and your business. To understand how factor rates work, read this page.
Note: Before considering a consolidation loan, read your mca contract[s] carefully.
Is there an early payment penalty?
Are the pay-off amounts inclusive of all interest as if you never consolidated?
Is your new advance front loaded with interest?
Who is going to pay the existing MCA’s off, you or the consolidation company?
We can help you figure this all out for free and tell you exactly what you are facing. A free consultation with us will open your eyes to new possibilities when none seemed to exist.
If you are considering an mca consolidation loan, the clock is already ticking,
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