Stuck in a Merchant Cash Advance? Here Are Your Options.

Daily withdrawals drain cash flow, a fixed payoff amount that does not shrink with faster repayment, and a UCC lien covering business assets. Merchant cash advances are designed to provide quick capital, but getting out of one can be considerably more difficult than getting into one.

Why Merchant Cash Advances Are Hard to Refinance

An MCA is not a loan. It is structured as a purchase of future receivables rather than an extension of credit, which is one reason they are often analyzed differently from traditional loans under state lending laws. A factor rate of 1.3 on a $100,000 advance means you owe $130,000 total. In most MCA agreements, the total purchased amount does not decrease simply because the business remits it sooner. The total cost is fixed at origination.

Because MCAs are not loans, replacing one means finding a different financing structure that pays off the MCA funder and closes out the obligation. MCA funders typically file UCC-1 blanket liens on all business assets when they advance funds. Many senior lenders will require those liens to be released or formally subordinated before closing. Getting a payoff letter and lien release from the MCA funder is often the first practical step.

MCA Stacking: When the Problem Compounds

Stacking happens when a business takes out a second or third MCA while the first is still active. It usually starts as a short-term response to cash flow pressure, and it accelerates the problem. Multiple daily withdrawals from different funders compound quickly. Each additional advance adds another UCC lien. By the time a business with stacked MCAs tries to access conventional financing, the picture on the bank statement makes approval unlikely.

If you are already stacked, your options narrow but do not disappear. Consolidation structures that roll multiple advances into a single obligation exist, though they typically carry their own costs. The first objective is usually preventing additional stacking while evaluating longer-term financing options.

Can Merchant Cash Advances Actually Be Refinanced?

Although an MCA is commonly structured as a purchase of future receivables rather than a loan, replacing it usually requires paying off the advance with an entirely different financing structure. There is no traditional loan balance to modify or refinance under the existing MCA agreement.

What business owners are actually doing when they talk about refinancing an MCA is replacing it with a conventional financing structure. The new financing pays off the MCA funder, terminates the advance, and puts the business on a fixed repayment schedule with a conventional lender. The result looks like refinancing, but the mechanism is a payoff and replacement, not a restructuring of the same obligation.

What SBA Cannot Do Here

Under SBA SOP 50 10 8, effective June 2025, merchant cash advances and factoring agreements are not eligible for debt refinancing under SBA 7(a) or 504 programs. This is a categorical prohibition. A business carrying MCA debt cannot use a new SBA loan to pay it off directly. SBA financing may still be available for other purposes, but clearing the MCA is not one of them.

Once SBA financing is off the table, the question becomes which financing structure fits the business's current position. The answer depends less on the MCA itself than on the company's assets, cash flow, customers, and overall credit profile.

Financing Structures That Can Replace an MCA

Non-Bank Term Loans

Non-bank term lenders can move faster than banks and often work with businesses that carry existing MCA debt. The loan pays off the MCA funder, the UCC lien is released, and the business repays the term loan on a fixed monthly schedule. The cost of this financing is typically lower than that of continuing with merchant cash advance funding, although it is generally higher than that of conventional bank financing. The primary requirements are revenue, time in business, and demonstrated ability to support the new payment.

Asset-Based Lending

For businesses with accounts receivable or inventory, an asset-based revolving line of credit can provide the capital to pay down MCA debt and serve as an ongoing working capital facility. Availability is calculated from a borrowing base tied to eligible assets, which means available credit can increase as eligible assets increase. The lender takes a senior secured position, which requires the MCA funder's UCC lien to be released as part of the transition.

Equipment Refinancing

Businesses that own equipment outright or have equity in financed equipment can borrow against that collateral. The proceeds pay off the MCA, and the business repays the equipment loan on a fixed schedule tied to the asset's useful life. This works particularly well for manufacturers, contractors, and transportation companies where equipment values are substantial. Collateral value generally carries more weight than overall business credit in these transactions.

Invoice Factoring

Invoice factoring converts outstanding receivables into immediate cash by selling them to a factoring company at a discount. For a B2B business with creditworthy customers and slow-paying accounts, factoring can generate enough liquidity to pay down or retire an MCA without taking on new debt. Approval is based primarily on the creditworthiness of the customers who owe the invoices rather than the business's own credit profile. Whether factoring resolves existing UCC lien issues depends on how the transaction is structured and whether the MCA funder releases its lien as part of the payoff. Factoring companies also file their own UCC statements, typically against the specific receivables being purchased rather than all business assets.

Conventional Bank Loans

A conventional bank loan is the lowest-cost option if the business qualifies. The challenge is that a business actively carrying MCA debt, particularly with daily withdrawals visible on bank statements, faces significant underwriting scrutiny. Banks view MCA activity as a credit risk signal. If the business has otherwise strong financials and the MCA is manageable, a bank payoff is worth pursuing. Most businesses in MCA distress will not qualify until the MCA is resolved through another means first.

What to Do Before Applying Anywhere

Before approaching any lender, get a payoff statement from the MCA funder. Understand the exact amount needed to retire the obligation and confirm whether there is any discount available for early payoff. Some MCA funders will negotiate; many will not. Know the number before you start.

Pull your UCC filings. A search on your state's Secretary of State website will show every active lien on your business. If there are multiple MCA funders with UCC-1 blanket liens, a new lender will require all of them to be released or subordinated before closing. That process takes time and coordination. One additional point: MCA funders are required under UCC Section 9-513(c) to file a termination statement within 20 days of receiving a written demand after payoff. Many do not do this without being asked. If you have paid off an MCA and the lien is still showing on the public record, send a written demand to the funder. An unreleased lien from a retired advance can block new financing the same as an active one.

Prepare three to six months of business bank statements. Every lender evaluating an MCA exit will want to see revenue patterns, existing payment obligations, and how the business performs once the MCA obligation is eliminated.

A contractor with two active MCAs may not qualify for another advance, but could qualify for equipment-backed financing if the business owns valuable machinery. A distributor with strong receivables may be a better candidate for asset-based lending or factoring. The solution depends on what is driving the business's cash flow, not simply the existence of the MCA.

The right exit strategy depends on why the business took the MCA in the first place. A company with strong receivables and creditworthy customers has different options than one relying on daily advances to cover operating costs. Understanding which financing structures are actually available before taking on another advance often produces better long-term financing options.

Connect With Morewood Funding

Morewood Funding works with businesses carrying MCA debt to evaluate which financing structures can replace a high-cost advance and what the path to doing so looks like given the business's current position. If you want to understand your options, reach out.

Call: 917-561-7074

Email: howard@morewoodfunding.com

Visit: www.morewoodfunding.com