Stuck in a Merchant Cash Advance? Refinancing May be an Option.

Howard Abrahams

Jul 20

3 min read

Updated: Aug 19

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Structure of a Merchant Cash Advance (MCA)

An MCA is structured as a purchase of future receivables rather than an extension of credit. For example, a "factor rate" of 1.3x on a $100,000 advance means you owe $130,000 over the payback term. Typically, the owed amount is paid back in equal weekly installments over a given period of time. In this case, the payback would be $130k / 50 weeks or, $2600 per week. Fundings can be structured for as long as 12 months or as short as 3 months.

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. Multiple daily or weekly withdrawals from different funders compound the pressure on the business.

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?

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.

MCAs are not Eligible for SBA Refinancing

Under SBA SOP 50 10 8, effective June 2025, merchant cash advances are not eligible for debt refinancing under SBA 7(a) or 504 programs. 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.

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 or Factoring

For businesses with accounts receivable, 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.

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.

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.

Steps Before Applying for a New Loan

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 this.

Prepare three to six months of bank and financial 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.

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.