Merchant cash advances are perfect for when you absolutely need to cover unexpected expenses or make ends meet between payments. You can get the money you need quickly without a lot of hassle.
But once you get a merchant cash advance, most business owners almost always have buyer’s remorse.
According to NerdWallet, “A business with $100,000 in monthly revenue would owe $333 per day or $2,331 per week based on a percentage of sales of 10 percent” — and the APR is not set. “The speed with which you repay your loan is a factor in determining your APR and can help drive it into the triple digits,” explains NerdWallet. (You can check your true APR here).
Plus, with the stiff repayment terms and daily debits, merchant cash advances can eat through your hard-earn revenue and leave you even worse off than where you started.
So here are three reasons to refinance your merchant cash advance with a term loan as soon as possible — instead of waiting until the last minute:
1. Stop the Daily Payments Killing Your Cash Flow before It’s Too Late
First, with a merchant cash advance, you will typically have to manage a daily or weekly payment. Most businesses don’t get paid daily, and so making payments daily just doesn’t make sense. As a merchant cash advance eats through payments, you’ll run into cash-flow problems… often necessitating another merchant cash advance! Or, worse yet, the cash flow won’t materialize, and you’ll be left with declining revenue and a declining bank balance.
Before long, you’ll be caught in a downward spiral of insolvency and no other lenders will be able to step in to help.
2. Give Yourself Some Breathing Room
Most merchant cash advances need to be repaid inside of 12 months. That’s great if you’re using it for a short-term, high ROI project. But in our experience, most business owners can’t make enough money fast enough to pay back their merchant cash advance. If your expect to earn your return over the next couple of years, you’re going to be back in the exact same position (needing money now) in only a few months.
Extending the term with a term loan will give you more breathing room. You’ll pay back less each month, which means you’ll repay over a longer term, which means you can better plan your cash flows.
3. Lower Your Monthly Payment and Redeploy the Savings
Merchant cash advances have very short repayment terms (typically less than one year). Most term loans, by contrast, have terms over two years. So even if you’re fine with daily payments, in almost every case, you’ll be able to cut your total monthly payment by at least half by refinancing. That’s more cash on hand that you can reinvest in your business.
In our experience, borrowers on average save over $5,000 per month through refinancing their merchant cash advance. But you can click here to see how much refinancing could save you.