Quick Summary: Yes, you can consolidate MCA loans, but doing so often costs more than the original debt and extends your financial burden for years. MCA consolidation loans charge origination fees of 5-15% plus APRs ranging from 39% to 159%, all on top of what you already owe. Before taking on more debt, consider alternatives like negotiating directly with your MCA provider, settling the debt through an attorney, or exploring legal options to challenge unfair contract terms.
What Does It Mean to Consolidate MCA Loans?
Consolidating MCA loans means taking out a new loan to pay off multiple merchant cash advances at once. The new lender pays off your existing MCA debts, and you make payments to them instead, ideally at a lower daily or weekly amount spread over a longer term.
On paper, consolidation offers several potential benefits: simplified repayment (one payment instead of multiple), potentially lower interest rates, extended repayment terms, and improved cash flow. However, for businesses already struggling with merchant cash advance debt, these benefits often come with significant hidden costs.
How Is MCA Consolidation Different From Refinancing?
Consolidation combines multiple MCA debts into one new loan. Refinancing replaces a single MCA with a new loan that has better terms. Both aim to improve your situation, but they work differently:
| Feature | Consolidation | Refinancing |
|---|---|---|
| Purpose | Combine multiple MCAs into one loan | Replace one MCA with better terms |
| Best for | Businesses with multiple MCAs (“stacking”) | Businesses with a single MCA |
| Result | One new loan replaces several debts | One new loan replaces one debt |
| Goal | Simplify payments, extend terms | Lower rate or better repayment structure |
The key problem with both approaches: you’re taking on new debt to pay off existing debt. If your business is struggling with MCA payments, adding another loan, even one with “better” terms, may simply delay the inevitable while increasing your total costs.
What Are the Different Types of MCA Consolidation Loans?
Several financing options exist for consolidating MCA debt, each with different requirements, costs, and trade-offs:
Traditional bank loans: Offer the lowest interest rates and longest terms, but require strong credit, established business history, and extensive documentation. Most businesses struggling with MCA debt won’t qualify.
SBA loans: Government-backed loans with competitive rates (typically 6-13% APR), but the application process takes 2-3 months and requirements are strict. Again, difficult to qualify if you’re already in financial distress.
Online lenders: Faster approval and more flexible requirements than banks, but higher interest rates (often 15-50%+ APR) and shorter terms. Better than MCA consolidation companies, but still expensive.
Business lines of credit: Flexible access to funds where you only pay interest on what you use. Can help manage cash flow, but requires discipline and may have variable rates.
MCA debt consolidation companies: Specialize in consolidating high-interest MCA debt, but often charge the highest fees and rates of any option. These should generally be avoided, more on this below.
What Do You Need to Qualify for MCA Consolidation?
Lenders typically require proof that you can handle the new loan payments. Common requirements include:
Business performance: Steady revenue, usually with at least 12 months of operating history. Lenders want to see that your business generates enough income to cover debt payments.
Credit score: Both personal and business credit scores factor into approval and rates. Lower scores mean higher costs, if you qualify at all.
Debt service coverage ratio (DSCR): This measures whether your business income covers your debt obligations. A DSCR above 1.0 means you’re generating more than you owe. Lenders typically want to see 1.25 or higher.
Documentation: Financial statements, 3-6 months of bank statements, 2 years of tax returns, and details on all current debt obligations.
Collateral: Some lenders require business assets, equipment, or real estate to secure the loan.
Here’s the catch: if your business had strong cash flow and good credit, you probably wouldn’t have needed an MCA in the first place. Many business owners who need consolidation most are the least likely to qualify for favorable terms.
Why Are MCA Consolidation Companies Risky?
MCA consolidation companies market themselves as a lifeline for struggling businesses, but their “solution” often makes the problem worse. Here’s how they typically work, and why you should be cautious:
Let’s say you owe $50,000 on an MCA with daily payments of $600. A consolidation company offers to make those $600 daily payments on your behalf until the original MCA is paid off. In exchange, you make smaller daily payments to them, say $200, for 2-10 years.
Sounds better, right? Here’s what they don’t emphasize:
The Total Cost Is Much Higher
MCA consolidation loans typically charge 5-15% origination fees upfront, plus APRs ranging from 39% to 159%. You’re paying these costs on top of the full amount you already owe on your original MCA, the factor rate on that advance doesn’t decrease just because someone else is making the payments.
A $50,000 MCA that would have cost $70,000 total could easily become $100,000+ after consolidation fees and interest over several years.
Daily Payments Continue for Years
Lower daily payments sound appealing until you realize they continue for 2-10 years instead of a few months. That constant cash drain makes it harder to rebuild your business, invest in growth, or recover from the financial stress that led to the MCA in the first place.
As one attorney puts it: your business may still bleed out, just more slowly.
Personal Guarantees Put You at Risk
Like your original MCA agreement, consolidation loans typically require a personal guarantee. If your business misses even one payment, the lender can pursue your personal assets, your home, savings, or other property.
Qualification Is a Catch-22
To get decent consolidation terms, you need good credit and cash flow. But if you had those, you likely wouldn’t be struggling with MCA debt. Businesses that need consolidation most often only qualify for the most expensive, predatory terms.
What Are Better Alternatives to MCA Consolidation?
If MCA payments are threatening your business, consolidation isn’t your only option, and it’s often not the best one. Consider these alternatives:
Negotiate Directly With Your MCA Provider
Some MCA companies will restructure payment terms if you’re upfront about your situation. This won’t always work, MCA providers can be aggressive, but it costs nothing to ask.
Settle the Debt Through an Attorney
A debt relief attorney can negotiate with MCA providers from a position of legal leverage. Attorneys can identify contract violations, challenge UCC liens, or threaten litigation, tools that individual business owners don’t have. Depending on your situation, you may be able to settle for significantly less than you owe.
Explore a Term Loan or Line of Credit
If you can qualify, a traditional term loan or business line of credit offers monthly (not daily) payments at much lower rates. Online lenders have more flexible requirements than banks, though rates will be higher. Even an expensive term loan is typically cheaper than MCA consolidation.
Consider Bankruptcy as a Last Resort
If your financial situation is severe, bankruptcy may provide more relief than years of consolidation payments. Because personal guarantees are often attached to MCA agreements, the process can be complex, consult with an attorney before proceeding.
Should You Consolidate MCA Loans?
For most struggling businesses, MCA consolidation creates more problems than it solves. You’re adding expensive new debt on top of existing expensive debt, extending your payment burden for years, and potentially putting personal assets at greater risk.
Before signing up for any consolidation loan, calculate the true total cost, including all fees, interest, and the full amount owed on your original MCAs. Compare that to alternatives like settlement or restructuring. In many cases, working with a debt relief attorney to negotiate or challenge your MCA debt directly will cost less and resolve the situation faster.
Get Help With MCA Debt
Merchant cash advances can be predatory financing, and consolidation loans marketed as “relief” often make the problem worse. Before taking on more debt, explore your legal options.
Tayne Law Group has decades of experience helping business owners negotiate with MCA providers, challenge unfair contract terms, and find real paths out of debt. Contact us at (866) 890-7337 or fill out our short contact form for a free consultation. We’ll review your situation and explain your options, with no obligation.
