When you operate a small business, there is always a chance that you are going to need a bit of extra working capital to get things done. There are numerous loan options out there for you to apply for, but not all of them are going to be swift and convenient. One option known as a Merchant Cash Advance (MCA), however, is fast, efficient, and more flexible in terms of repayment, including reverse consolidation. If you are interested in getting an MCA, knowing more about reverse consolidation, including what it is and how it works, is essential.

Key Takeaways

• MCAs provide businesses with immediate working capital by offering a lump sum in exchange for a percentage of future sales.
• Repayments are tied to daily credit card transactions or overall revenue.
• Reverse consolidation is a financial strategy targeting short-term debts like MCAs, where multiple obligations are combined into a single loan or payment plan with improved terms.
• Reverse consolidation offers benefits like improved cash flow, simplified financial management, potential for better terms, and enhanced credit profile.

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is an option for gaining working captial that businesses can use almost immediately. An MCA works by providing you with a lump sum of money in exchange for a portion of your future sales. Unlike traditional loans, MCAs are repaid through a percentage of the business’s daily credit card transactions or overall revenue, resulting in flexible payments that vary with sales volume. This makes MCAs particularly attractive for businesses with fluctuating incomes, as repayments adjust according to daily revenue.

MCAs are popular among small businesses due to the rapid approval process and the minimal qualification requirements. Furthermore, most MCA lenders focus more how well your business performs rather than collateral or credit scores.

What is Reverse Consolidation?

Reverse consolidation, also known as debt consolidation, is a financial strategy where multiple debts or financial obligations are combined into a single loan or payment plan with more favorable terms. Unlike traditional consolidation, where debts are merged into one to simplify payments, reverse consolidation specifically targets high-frequency, short-term debts like Merchant Cash Advances (MCAs). In the context of MCAs, reverse consolidation involves bundling multiple advances into a single loan with a longer repayment period and potentially lower interest rates. This process aims to alleviate the financial strain caused by frequent MCA repayments, providing businesses with a more manageable repayment structure and improved cash flow.

How Does Reverse Consolidation Work?

Reverse consolidation works by helping you extend the loan repayment term. In other words, your business gets more wiggle room. Reverse consolidation is especially useful when you are experiencing tighter cash flow than usual or when certain products and/or services are underperforming. By utilizing reverse consolidation, you can reduce the payments by 40% to 60%.

But how does a reverse consolidation work exactly? A reverse consolidation opens a larger loan with a new lender that pays towards the MCA by lengthening the repayment period and giving you a chance to pay smaller amounts back. The overall process requires you to look at the existing debt, consolidating it into a single loan (if you have more than one MCA open), and then making a single payment on the new unified loan.

Reverse Consolidation vs. Regular Consolidation

Regular and reverse consolidation are both methods of paying back a debt or, in this case, merchant cash advances. However, that is where the similarities end. A reverse consolidation continues paying back the MCA but with funds from another lender. Meanwhile, a regular consolidation provides you with the funds needed to pay back the MCA lender. In the end, the regular consolidation replaces the MCA with a different term loan.

What are the Benefits of Reverse Consolidation?

For businesses that cannot pay back their loan on a daily or weekly basis, reverse consolidation can help make loans more flexible. Here are some other benefits of reverse consolidation that you should consider:

• Improved Cash Flow: Reduces total daily/weekly payments and makes cash flow more predictable. Furthermore, this can free up cash flow for the business, making it easier to handle operational expenses.
• Simplified Financial Management: Combines multiple payments into one, easing administrative burden and communication.
• Better Terms: Potentially offers lower interest rates and extended repayment periods, reducing overall borrowing costs. Do keep in mind that consolidation may come with the option to extend the repayment period, which can lower the amount of each installment, although this could increase the total interest paid over time.
• Enhanced Credit Profile: Helps avoid defaults, improving credit rating and future financing options. Consistently making consolidated payments on time can help improve a business’s credit profile, potentially making it easier to secure more favorable financing in the future.
• Reduced Stress and Focus on Operations: Minimizes disruptions and allows business owners to focus more on core operations.

Contact an MCA Lender Today to Learn More

Knowing that you have options for repaying an MCA or multiple ones is useful in a number of ways. Not only does reverse consolidation alleviate some of the stress of repayment, but it also means that you have more than one way to repay your MCA loan.

When you are ready to free up some working capital and mitigate some stress of running a small business, reach out to New Bridge Merchant Capital. We offer a variety of loans, including MCAs, as well as flexibility and fewer requirements than traditional lenders. Get in touch with us today by calling 844-228-0593 or by filling out the online form. Let’s boost your business.