Get it together! Let us be clear – we’re talking about your current debt.
It’s no rare thing to have several loans at once, so if that applies to your business, don’t feel bad.
Below, we’ll give you a breakdown of one of the more popular financing options that can help you handle your existing loans: reverse consolidation.
Do you have questions? Good! Keep reading to get answers to questions, including:
- What is a reverse consolidation loan?
- How does a reverse consolidation work?
- And more!
What is reverse consolidation?
Reverse consolidation is the process of taking a business loan specifically meant to cover the costs of paying back multiple merchant cash advance loans.
Side note: This is different from taking multiple business loans in a more general sense.
Does a reverse consolidation completely eliminate the need to make payments on a merchant cash advance? No.
Does a reverse consolidation make it much easier to make payments back on multiple merchant cash advances? Yes.
These are just the bare-bone essentials of what a reverse consolidation business loan is. If you want the detailed answer to “What is a reverse consolidation loan?”, then scroll down!
Side note: If reverse consolidation loans don’t sound like the solution for your business, take some time to learn about other types of business loans that may prove helpful.
If you’re familiar with different kinds of funding options but you don’t want to waste time fishing for the right business loan, you can use Become to get automatically matched with the optimal lender for your needs!
How does reverse consolidation work?
A reverse consolidation business loan works by covering the daily payments a business owes on existing merchant cash advances they’ve taken. The business isn’t actually getting rid of its merchant cash advances in one fell swoop – that’s not what a reverse consolidation does.
The basic idea when a business takes out a reverse consolidation loan is to exchange the frequent repayment schedules of its MCA loans with a larger loan that has a longer repayment period and smaller repayment amounts.
So, while it doesn’t wipe the slate clean right away, a reverse consolidation loan can help a business pay off its MCA obligations without the stress and pressure that comes with juggling several MCA repayment schedules at once. Of course, the business still needs to pay back the reverse consolidation lender. But with far less anxiety than being required to pay back multiple MCA’s.
How does it differ from a regular consolidation?
A reverse consolidation loan differs from a ‘regular’ consolidation in one main way:
A reverse consolidation loan doesn’t pay off your business’s existing loans all at once the way that ‘regular’ consolidation loans do.
Regular consolidation loans provide funds to pay off all of a business’s existing loans at one time. That creates a new payment plan for the business to pay back to a single lender.
Reverse consolidation loans keep your current repayment plan with your MCA lenders – it’s just that the funds from the consolidation lender will cover those payments for you.
There are a couple of issues with regular consolidation loans though. First, they can be more complicated since the consolidating lender will need to communicate directly with the existing lenders. Additionally, there’s a big risk for the consolidating lender since the you’ll be left with just one remaining loan position.
That means that you could theoretically take out more loans again and dig yourself into another hole of debt. If that were to happen, the consolidating lender could obviously have a tough time collecting payments from you. Those aren’t the only reasons to be careful when considering reverse consolidation though…
What are the problems with a reverse consolidation loan?
As helpful as they may be for many businesses, reverse consolidation loans are not the perfect solution for everyone.
There are two main sore points when it comes to reverse consolidation loans:
- Total debt isn’t reduced in the short term. On the contrary, it can actually increase. While the payment amounts may be smaller, the overall level of debt can go up. That can wreak havoc on your debt service coverage ratio.
- The loan terms are longer for reverse consolidation loans than for MCA’s. It’s crucial to consider this point whether you plan on taking another loan in the near future or not.
Every business owner that’s considering reverse consolidation should take those two points into consideration before making a decision. While it can be enticing to borrow money when it’s there and available, the long term impact may not be exactly as you imagined.
Be sure to do your due diligence prior to taking a reverse consolidation loan. You may also want to consult with a financial advisor so you can get a fuller understanding of the situation your business will be entering with a reverse consolidation loan.
Wrapping it up
As promised, we’ve provided you with answers to the questions:
- How does a reverse consolidation work
- What is reverse consolidation
- And more
We certainly don’t advise anybody to get themselves into a sticky financial situation by taking out too many MCA loans – but if that sounds familiar to you, scroll back up and read about why a reverse consolidation can be the solution you need!