A merchant cash advance or MCA is a type of business financing that is issued on a short-term basis to help a business boost its working capital. In return, the business agrees to sell some of its small future revenue to the merchant cash advance lender. This is one of the simplest ways for the business to get immediate cash. This loan is usually given on a term ranging between 2 to 24months based on the amount the business is borrowing. 

MCA is an easy option, so businesses often opt for it. Sometimes, they even apply for more than one merchant cash advance in a year to keep the working capital on track. As a result, they end up with multiple cash advances to manage. They feel the pressure of debt, which affects their business operations as well. 

The thing is businesses cannot delay or skip the MCA repayment. The lenders collect the repayments either by pulling the payments directly from the business account or by splitting the business’s merchant account revenue. When lenders demand repayment and there is no way left for the businesses to pay the debt, reverse consolidation MCA comes in. It manages small loans and helps businesses to come out of debt. 


Reverse Consolidation MCA- A brief introduction 

A reverse consolidation is a type of loan that predatory lenders claim to help a business that is already stacked with several merchant cash advances. Lenders combine the numerous cash advances of the business under reverse consolidation. Here, the business does not have to deal with week-by-week disbursement of funds to repay the small loans they owe. In reverse consolidation of MCA, only a smaller payment is required over a long period. 

The reverse consolidation doesn’t reduce the amount of business owed or consolidate the outstanding MCAs of the business; instead; this loan option makes the daily or weekly repayment schedule more manageable in the short term. The fact is the reverse consolidation loan option adds another MCA onto the business’s plate. The only difference is the longer payment option than most short-term MCAs. 

In reverse consolidation of MCA, 

  • The lender deposits money into the business's bank to take care of all cash advance payments it has to make for the week. 
  • In return, the business only needs to make a single payment every week to the reverse consolidation financier. This amount is only the portion of what the     business pays at the moment for its cash advances. 
  • The length of repayment for the money loaned by reverse consolidation funders is longer than the repayment term given by cash advance lenders. A business  can pay the reverse consolidation funder after the payment of all the cash advances. 


Difference between MCA reverse consolidation and regular consolidation 

Both consolidation options help the business to pay back a merchant cash advance. But, they are different in a major way. This difference makes the choice easier for the business when they have to get rid of the debt. A reverse consolidation pays back the MCA lender continuously. It’s just about funds from the reverse consolidation lender. On the other hand, the regular MCA consolidation gives a business the funds to pay back the existing loans at once. Here, the business gets a new loan term with a consolidation lender instead of the MCA financier. 


Benefits of Reverse Consolidation MCA

Reduces weekly payments- With reverse consolidation MCA, business doesn’t have to worry about weekly payment. The weekly repayment amount reduces as the reverse consolidation lender takes on the debt to pay back the MCA lender. 

Gives more access to cash- Multiple MCAs to payback on a daily or weekly basis create problems in the cash flow for the business. Most cash will go away in the repayment and nothing will be left behind for the business. As reverse consolidation lenders infuse the funds to pay back MCA lenders, the business has more cash on hand.

Acts as a bridge for better options- Lenders giving away a traditional loan like an SBA loan are doubtful about a business with multiple MCA loans and debt stacking. Even the business is unable to keep up with high-interest rates and short repayment terms. The reverse consolidation allows the business to receive more capital funding until the situation evolves and it qualifies for better financing options. 


Frequently asked questions related to reverse consolidation MCA


Does reverse consolidation affect the credit rating?

Reverse consolidation helps a business to manage its debts, improving its credit rating, especially if any of these debts are reported to credit bureaus. With this, the business can repay all its debts on time and as per the agreement with the lender. Thus, there is no effect on credit rating. 


Is it possible to consolidate all the merchant cash advances at a time?

 A business is allowed to consolidate multiple cash advances into a single loan. But, it’s possible as long as the business can repay and secure the reverse consolidation loan. Generally, a business can consolidate between 2 and 9 cash advances. 

Rest, the consolidation depends on a few factors considered by the lender, such as business profitability, and credit rating to determine the amount of money the business qualifies to get a loan and the number of cash advances the lender can consolidate for the business. 


Is reverse consolidation a cost-saving option?

Merchant cash advances boost the working capital of the business. But, if there are multiple cash advances, they affect a business’s cash flow as most of the profit of the business is used to repay the small loans. With reverse consolidation, a business has to only pay one loan, which is very less than what is spent on small cash advances. Thus, a business saves up a considerable amount of its cash flow. Reverse consolidation of MCA leads to uninterrupted business operations as it pays the debt and protects the working capital. Also, it's an easy and cost-saving option for the business.