How does merchant cash advance consolidation work?

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For businesses that don’t have great credit and that can’t qualify for conventional or SBA loans, a merchant cash advance (MCA) can be a useful tool. An MCA can help the business get access to cash to cover expenses or to expand. Sometimes, however, a business might take out more than one merchant cash advance. Then it could end up paying different interest rates and fees for each. Plus, it will have to deal with different payment schedules for each. A merchant cash advance consolidation is an option that lets you roll up all of those advance payments into one. Ideally, an MCA consolidation has the potential to cut down on what you’re paying in interest and fees.  

What is a merchant cash advance?

Not every business qualifies for a traditional bank or SBA loan. Perhaps it hasn’t been in business long enough to be eligible, or maybe it doesn’t meet the credit requirements. That’s when a merchant cash advance may be useful. An MCA is not a loan, but rather an advance on future sales. To determine eligibility, MCA providers may not rely heavily on criteria like time in business and/or credit scores, but instead consider revenues. That may make it easier for some businesses to get than other types of financing. When you get an MCA, you receive a lump sum payment. 

Typically, MCAs express the interest they charge as a factor rate (a decimal figure) rather than as a percentage and prepaying them would not reduce the amount of money you owe, but it’s usually not an option anyway. As your business sells its products or services, repayment is automatically debited daily or weekly until the balance (including factor rate and other fees) is paid off. The downside is that, when it comes to conventional vs. SBA loans vs. merchant cash advances, MCAs tend to have much higher fees and interest than the other two, making them a costly financing option. This is because businesses that don’t qualify for traditional or SBA loans may be viewed as more of a risk to lenders. Typically, lenders try to mitigate that risk by charging borrowers more for the privilege of having access to capital.

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What is merchant cash advance consolidation?

A business may take out multiple merchant cash advances over time. As a result, the company may end up with multiple repayment schedules and pay different factor rates for each. A merchant cash advance consolidation rolls multiple MCAs into one advance or loan with one repayment schedule and one factor rate. Ideally, that merchant cash advance consolidation loan would have a lower interest rate than the business was paying on the multiple advances.

When to consider merchant cash advance consolidation

If your business has taken out multiple merchant cash advances, you may be able to save money with a merchant cash advance consolidation loan. You may also be able to simplify repayment by having a single automatic debit rather than multiple payments. If you run the numbers and it looks like you can save money and avoid inconvenience, it may be a good time to consider a merchant cash advance consolidation. 

What to consider with merchant cash advance consolidation

Before applying for a consolidation loan, look at what you’re currently paying in interest and what you’d qualify for with a new loan. There’s probably no sense in taking on a new consolidation loan unless that interest is lower than what you’re currently paying. Also look at the repayment period and what your payments might be. A shorter repayment period means bigger payments that you might not be able to afford. But a longer period would offer smaller payments, albeit more of them. Extending the time frame, however, will likely mean that you end up paying more in total. Examining the options can help you find one that will work well for you.

Refinancing vs. consolidation

If you’ve heard of refinancing, you may think it’s the same as merchant cash advance consolidation, but the two are not exactly the same. It’s true that both can potentially lower your interest rate and/or lengthen your payment term. But when you refinance, you’re replacing one MCA with a new one or a loan. When you opt for an MCA consolidation, you’re rolling multiple MCAs into a new one of a loan.

Refinancing Consolidation
Replaces one
MCA with a new one or a loan
Rolls
multiple MCAs into a new one or a loan with a single rate and repayment
schedule
Ideally
costs less in interest or payments than the MCA it replaces
Ideally
costs less in interest or payments than the MCAs it replaces

Types of consolidation loans

There are a few types of cash advances and loans you can use for consolidation, depending on what you qualify for. Lenders may have different approaches to help you with consolidating your loans. Some will buy out the loan and pay it off directly, while others will lend you the money, after which it’s your responsibility to pay off the loans.

Merchant cash advance

If you’ve taken out multiple MCAs, it’s likely because your business doesn’t have great credit and doesn’t qualify for other types of loans. If that’s the case, you might consider a merchant cash advance with bad credit option to consolidate your existing MCAs. Be aware that you will likely have a short repayment period, perhaps between a few months and three years.

Online lenders

Another consolidation option if you don’t have excellent credit is taking out a consolidation loan with an online lender. Interest rates may be lower than with a merchant cash advance, and repayment terms may be longer.

SBA Loans

SBA loans like the 7(a) program can be used for a number of expenses, if you qualify. Repayment terms can be up to 25 years, and rates on SBA loans are among the lowest of any financing option for businesses.

Traditional Bank Loans

If you’ve improved your credit since taking out the MCAs, you may qualify for a bank loan with low rates and long repayment terms.

Examples of merchant cash advance consolidation lenders

Here are some of the top lenders that offer merchant cash advance consolidation, based on an internet search for “merchant cash advance consolidation lenders” in August 2021.

Strong capital funding

Strong Capital Funding offers merchant cash advance consolidation loans of between $3,500 and $200,000, with same-day approval and funding. You may be able to qualify, no matter what your credit profile is.

GUD Capital

GUD Capital also offers consolidation options, including term loans, lines of credit, alternative loans, and SBA loans. Each may have different requirements for eligibility.

New York Tribeca Group

The New York Tribeca Group offers business cash advance debt consolidation of $3,000 to $5 million, and provides discounts if you pay your advance off early. Repayment terms are four months to two years, and interest rates start at 8%.

Fundrite

Fundrite offers what are called reverse consolidations to businesses that are underwater with multiple merchant cash advances. Rather than rolling all MCAs into one, you can receive a lump sum of working capital up front and Fundrite will pay your first week of MCA payments, while only debiting 70-80% of the existing payments due. As your MCA debts are paid off, Fundrite deposits less until all you are paying on is the reverse consolidation. This system allows you to pay less on those daily or weekly payments and retain cash flow.

Kanjorski Partners

Kanjorski Partners is another MCA consolidation option to consider. You can consolidate all your MCAs into one loan that you’ll repay over 24 to 36 months. You might be able to lower your monthly debt payments by 50% to 90%.

The Takeaway

If you feel like you’re drowning because you’re paying too much for multiple merchant cash advances, consolidating could be a solution to help you lower the interest you pay overall and roll everything up into one monthly payment. 

This article originally appeared on lanterncredit.com and was syndicated by MediaFeed.org.

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Understanding mortgage basics

Understanding mortgage basics

Do you ever window shop for the perfect home, whether by browsing online or taking a stroll through your favorite neighborhood? You’re not alone. It’s fun to dream about owning a place all your own.

If you’re getting more serious about buying a home, you’re probably aware that some of the next steps are, well, not quite as fun. One of those is acquainting yourself with the mortgage process.

A mortgage loan, a loan to buy a home or other real estate, provides people with the opportunity to purchase a home without having all the money upfront—which most people simply do not have.

While it is wonderful that mortgage loans open up homeownership to so many, taking out a mortgage is also a big responsibility. This home affordability calculator estimates what might be in your budget.

Taking the time to learn about mortgages before you dive headfirst into the buying process may be the way to go.

Related: What is mortgage amortization?

FabioBalbi/istockphoto

A mortgage loan, also known simply as a mortgage, is issued to a borrower who is either buying or refinancing real estate.

The borrower signs a legal agreement that gives the lender the ability to take ownership of the property if the loan holder doesn’t make payments according to the agreed-upon terms.

The homebuyer will pay monthly principal and interest payments for a specific term. The most common term for a fixed-rate mortgage is 30 years, but terms of 20, 15, and even 10 years are available.

A shorter term translates to a higher monthly payment but lower total interest costs.

DepositPhotos.com

When homebuyers apply for a loan, they’ll need to choose whether they want a fixed interest rate or an adjustable rate and the length of the loan.

Chainarong Prasertthai // istockphoto

The interest rate doesn’t change, so the monthly principal and interest payment remains the same for the life of the loan.

SARINYAPINNGAM / istockphoto

With an ARM, the interest rate is generally fixed for an initial period of time, such as five, seven, or 10 years, and then switches to a variable rate of interest. The rate fluctuates with the rate index that it’s tied to.

As the rate changes, monthly payments may increase or decrease. These loans generally have yearly and lifetime interest rate caps that limit how high the variable rate can adjust to.

Next, borrowers will need to decide what type of mortgage loan works best for them.

DepositPhotos.com

Conventional loans are loans that are not backed by a government agency, aand must adhere to the requirements of Fannie Mae, Freddie Mac, or other investors.

Private mortgage insurance commonly known as PMI, is generally required on loans with a down payment of less than 20%.

The coverage protects the lender against the risk of default. Your mortgage servicer must cancel your PMI when the mortgage balance reaches 78% of the home’s value or when the mortgage hits the halfway point of the loan term, if you’re in good standing.

PMI typically costs 0.5% to 1% of the loan amount per year.

Down payment: Generally between 3% and 20% of the purchase price or appraised value of the home, depending on the lender’s requirements.

designer491 // istockphoto

Loans insured by the Federal Housing Authority are attractive to first-time homebuyers or those who struggle to meet the minimum requirements for a conventional loan.

These loans usually require a one-time upfront mortgage insurance premium, which typically can be added to the mortgage, and an annual insurance premium, which is collected in monthly installments for the life of the loan in most cases.

Down payment: Starts at 3.5%

designer491 / istockphoto

Loans guaranteed by the U.S Department of Veterans Affairs are available to veterans, active-duty service members, and eligible surviving spouses.

VA-backed loans require a one-time “VA funding fee,” which can be rolled into the loan. 

The fee is based on a percentage of the loan amount, and may be waived for certain disabled vets.

Down payment: None for nearly 90% of VA-backed home loans.

designer491 / istockphoto

There are several components to a monthly mortgage payment.

  • Principal: The principal is the value of the loan. The portion of the payment made toward the principal reduces how much a borrower owes on the loan.
  • Interest: Each month, interest will be factored into payments according to an amortization schedule. Even though a borrower’s fixed payment may stay the same over the course of the loan, the amount allocated toward interest generally decreases over time while the portion allocated to principal increases.
  • Taxes: To ensure that a borrower makes annual property tax payments, a lender collects monthly property taxes with the monthly mortgage payment. This money is kept in an escrow account until the property tax bill is due, and the lender will make the property tax payment at that time.
  • Homeowners insurance: Mortgage lenders require evidence of homeowners insurance, which can cover damage from catastrophes such as fire and storms. Similar to property taxes, most lenders collect the insurance premiums as part of the monthly payment and pay for the annual insurance premium out of an escrow account. Depending on your property location, you may have to add flood, wind, or other additional insurance.
  • Mortgage insurance: When a borrower presents a down payment of less than 20% of the value of the home, mortgage lenders typically require private mortgage insurance.

DepositPhotos.com

reverse mortgage homeowners 62 and older to supplement their income or pay for health care expenses by tapping into their home equity.

The loan can come in the form of a lump-sum payment, monthly payments, a line of credit, or a combination, usually tax-free. Interest accrues on the loan balance, but no payments are required. When a borrower dies, sells the property, or moves out permanently, the loan must be repaid entirely.

The fees for an FHA-insured home equity conversion mortgage, by far the most common type of reverse mortgage, can add up:

  • An initial mortgage insurance premium of 2% and an annual MIP that equals 0.5% of the outstanding mortgage balance
  • Third-party charges for closing costs
  • Loan origination fee
  • Loan servicing fees

You can pay for most of the costs of the loan from the proceeds, which will reduce the net loan amount available to you.

You remain responsible for property taxes, homeowners insurance, utilities, maintenance and other expenses.

This HUD site details all the criteria for borrowers, financial requirements, eligible property types, and how to find an HECM counselor, a mandatory step.

If you’re considering a reverse mortgage, learn as much as you can about this often complicated kind of mortgage  before talking to a counselor or lender, the Federal Trade Commission advises.

Gerasimov174 / istockphoto

For lots of folks, it can be a good idea to shop around to get an idea of what is out there.

Not only will you need to choose the lender, but you’ll need to decide on the length of the loan, whether to go with a fixed or variable interest rate, and weigh the applicable loan fees.

The first step is to have an idea of what you want, then seek out quotes from a few lenders. That way, you can do a side-by-side comparison of the loans.

Once you’ve selected a few lenders to get started with, the next step is to get prequalified for a loan. Based on a limited amount of information, a lender will estimate how much it is willing to lend you.

When you’re serious about taking out a mortgage loan and putting an offer on a house, the next step is to get preapproved with a lender.

During the preapproval process, the lender will take a closer look at your finances, including your credit, employment, income, and assets to determine exactly what you qualify for. Once you’re preapproved, you’re likely to be considered a more serious buyer by home sellers.

When shopping around for a mortgage, it can be a good idea to consider the overall cost of the mortgage and any fees.

For example, some lenders may charge an origination fee for creating the loan, or a prepayment penalty if you want to pay back the loan ahead of schedule. There may also be fees to third parties that provide information or services required to process, approve, and close your loan.

To compare the true cost of two or more mortgage loans, it’s best to look at the annual percentage rate, or APR, not just the interest rate. 

The interest rate is the rate used to calculate your monthly payment, but the APR is an approximation of all of the costs associated with a loan, including the interest rate and other fees, expressed as a percentage. The APR makes it easier to compare the total cost of a loan across different offerings.

Depositphotos

Is the world of mortgages a mystery? You’re in good company. Before taking on this colossal commitment, it might be best to soak up as much as you can about how mortgage loans work, what kinds of mortgages are available, potential landmines, and steps to qualify.

Learn More:

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