Consolidation vs refinancing —
what's the difference?

Refinancing: one advance, replaced by a bigger one

In merchant cash advances, refinancing usually means a renewal. You've paid down part of an advance, and a funding company — often the same one — offers a new, larger advance. It pays off what's left on the old one and sends you the difference.

The catch is in how it's priced. The rate applies to the entire new advance, including the part that only pays off your old balance. Say you owe $20,000 on your current advance and renew into $50,000 at a 1.40 rate. You'll pay back $70,000. Only $30,000 of that reaches your account. On that $30,000 of new money, you're effectively paying $40,000.

That can still be a good deal for a healthy business that needs capital and would pay for it anyway. Two questions to ask first: will the funding company discount your remaining balance when you renew (some will), and do you need the new money, or just a lower payment? If it's the payment, a renewal is the wrong tool — it usually makes the payment bigger.

Consolidation: several advances, replaced by one payment

Consolidation is for a business carrying more than one advance at once, where the combined daily payments have become the problem. It comes in two structures.

A standard consolidation pays every existing advance off on the day it funds, using payoff letters from each funding company. From then on there's one payment, usually spread over a longer term so it's lower than the combined payments were. It needs every existing funding company to provide a payoff, and a file strong enough for one advance large enough to cover them all.

A reverse consolidation is for when that isn't possible. Nothing is paid off. Instead, the new funding company deposits enough each week to cover your existing advances' payments until each one finishes, and you pay it back with one daily payment that's lower than what you pay today — commonly 20% lower.

Either way, a consolidation rarely lowers what you pay in total. It lowers what you pay now, and you pay for that later. Whether that's worth it depends on how long the relief lasts on your particular advances — something you can check in our consolidation calculator.

Side by side

When neither is the answer

Both are new advances. If the business's revenue has fallen and isn't coming back, adding one doesn't fix that — it adds cost and makes the debt last longer. In that situation, look first at:

• Reconciliation. Many merchant cash advance agreements allow the payment to be adjusted when your actual sales drop. Ask your existing funding companies before taking on anything new.
• A different kind of financing. If your credit and time in business allow it, a term loan or line of credit can cost far less than any advance. Our line of credit vs MCA comparison walks through the numbers.
• Professional advice. If you're already in default or being sued, talk to a lawyer before signing anything.

Before you sign either one

• Ask for the total payback, not just the daily or weekly payment.
• On a renewal, ask whether your remaining balance is discounted.
• On a consolidation, make sure the old advances are paid by the new funding company — directly, or through scheduled deposits — never left for you to pay off from a lump sum in your account.
• Ask how many weeks the relief lasts before you're paying more than you would have.

When you send us your file, David looks at every advance you're carrying and has a few underwriters review it, then walks you through what each option would actually cost — including when the honest answer is not to consolidate at all.