As a form of financing, a merchant cash advance consolidation is a loan that a lender offers the borrower to pay off multiple MCAs and creates a single debt that a borrower can repay at a much lower rate. This consolidation loan has certain features and is very different from other types of business loans. 

The consolidation loan is issued at much lower interest rates and longer tenure than the MCAs the borrower owes. Due to the lower rate, the borrower has to pay smaller amounts weekly or day to repay the loan and due to longer tenure, the payment for the borrower spreads across several installments, giving the borrower sufficient time to pay it all. 

In every sense, the merchant cash advance consolidation is a great option for a business. It reduces financial strain and boosts the working capital of the business. But, the thing is when a business should apply for a consolidation loan. Should business owners apply for a loan anytime they feel financial stress? Or, are there any factors to apply and enjoy the benefits of a merchant cash advance consolidation loan?

First, you shouldn’t apply for the MCA consolidation anytime you want more funds for your business because it’s a type of loan that you will have to pay today or tomorrow. You cannot excuse yourself after consolidating the loan. 

According to us, you should opt for a merchant cash advance loan in the following situations:

Dwindling sales revenue 

Dwindling sales revenue means your business is not in a good condition. Before the condition becomes worse for your business, you should apply for a merchant cash advance consolidation loan. 

You should understand the reason for doing this. The payment you make for a merchant cash advance is deducted from card sales and the amount is fixed from day one for the same. If the sales revenue of your business is slow during off seasons or not as expected, the merchant cash advance payment may consume much of your cash flow. And any disturbance in your cash flow will create problems for you to meet your working capital needs. 

Rise in running cost

Running costs in a business is common. If you don’t take care of the running cost, your business will not operate properly as the employees will not be satisfied. Just keep in mind that employees need attention with extra services. Other than this, running costs include some important expenses for business operations. 

If you think the running costs are going to rise in the coming weeks or months, you should apply for a merchant cash advance consolidation loan. The loan will free up cash to cover the running cost spike as your cash flow will not get disturbed. No MCA payment will be done from the existing amount, assuring the free flow of running costs. Also, you will have to pay lower installments. 

Difficulty paying the current MCA debt

Keeping aside other problems and financial issues of your business, you should apply for the consolidation loan if you are having difficulty paying all the current MCA debt. If you have multiple MCAs, this is the best option. With this, you will get rid of the MCA debt without disturbing your working capital. 

If you become an MCA defaulter, it will affect your credit ratings. Also, the process will be costlier for you. With a bad rating, you will not be an attractive customer for other low-interest rate lenders. This will cut you off from other loan opportunities. 

Inability to access bank loans

You can pay off MCA debt with traditional bank loan options. You might get low-interest-rate bank loans as well. But, if you are unable to access bank loans because of your poor credit score or not meeting the collateral requirements of the bank, you should apply for a consolidation loan. 

A merchant cash advance consolidation loan is an unsecured loan, meaning the lenders don’t demand collateral. Lenders agree to the consolidation loan as they are only interested in your business’s profitability and its ability to repay the loan. If you present your business’s capabilities before the lenders, they will approve the loan unhesitatingly. 

Whenever your business’s situation resembles the condition described above, you should apply for a consolidated loan. But, keep in mind that all the applications don’t get approved. The lender will decide on your qualification after receiving the application. Also, the lender will review you and your business based on different factors. 

How do lenders evaluate borrowers before approving an MCA consolidation loan?

Below are some of the factors that lenders review before approving an MCA consolidation loan. 

The existing MCA balance 

This is the first thing that lenders are interested to know. They check and evaluate how much you owe your MCA creditors. They determine this based on percentage. 

Mostly, the lenders refuse the application if they find that the applicant has not repaid a substantial percentage of the loan. They find it risky as well as costly. The thing is that lenders are not comfortable keeping such a huge amount on stake without any collateral. So, if you want to improve your chances, you should consider paying a large chunk of your MCAs before applying for the consolidation loan. 

The number of defaults

If you have defaulted on any of your repayments, this is a red flag for the lenders. It’s difficult for the lenders to trust you and issue the consolidation. To avoid any risk for them, the lenders will find out your number of defaults. 

Even if you try, you cannot hide your defaulted payments as this information can easily be obtained from your credit report. Only your contact details are enough to find out the number of loans you have taken and repaid. If you have defaulted more than a few times, the lender might not be interested to offer you the consolidated loan. So, always keep your credit score good. 

The revenue generation 

One of the biggest factors that lenders consider and evaluate is the revenue generation of your business. The lender will check the track record of your business for the last six months or more. 

 If your revenue generation track record is good, the lender will be willing to pay your MCA debts. Through this record, the lender will see your business as financially viable. So, make sure your revenue generation record is impressive.

 A merchant cash advance consolidation loan is beneficial for your business, especially to get rid of the financial strain. To know more about this loan, contact Royale Capital.