How do I refinance a merchant cash advance?

To refinance a merchant cash advance, you take new money that is cheaper per year and longer to repay, use it to pay off the advance, and replace a heavy daily debit with a lighter monthly payment. It works when the new money's APR is genuinely lower. It backfires when the "refinance" is really a renewal: a new advance that pays off the old one and leaves you a small amount of fresh cash at a steep effective price.

How a real refinance works

1. Get a payoff letter from your current provider, with the exact amount and the date it's valid to.
2. Apply for the replacement: a term loan, line of credit, SBA loan or a longer, cheaper advance.
3. The new funder pays off the old one, often directly, and you receive any balance.
4. The old debits stop and, once the provider is paid, you ask it to terminate its UCC filing.

Check what the payoff includes. New York's disclosure rules require providers to say whether paying early still means paying "all or a portion of the finance charge" and whether any extra prepayment fees apply.

The worked number: refinance

You took $50,000 at a 1.35 factor over 6 months, paid daily: $535.71 a day, about $11,250 a month. Three months in, about $33,750 is left.

You replace it with a $100,000 term loan at 18% APR over 24 months: $4,992.41 a month. It clears the $33,750 and leaves about $66,250 to use. Your monthly payment falls by more than half, and the money costs 18% a year instead of about 126%.

The worked number: the renewal trap

Same position, $33,750 left. A provider offers a "renewal": $60,000 at 1.35 over 6 months. It pays off your $33,750 and sends you $26,250.

• You now owe $81,000.
• Of that, $33,750 was owed anyway.
• So you'll pay an extra $47,250 for $26,250 of new cash.

That's an effective factor of 1.8 on the cash you actually received, over 6 months. Our table tops out at 1.50, which over 6 months daily is already about 174% APR. This is well beyond it.

Sterling's take: on any renewal, subtract what you already owed and price only the new cash. That's the number that tells you what you're really paying.

When refinancing makes sense

• The new money's APR is clearly lower than what you're paying now.
• The longer term brings the payment comfortably inside your monthly margin.
• You're consolidating two or three advances into one payment.

When it doesn't

• The only offer is another short advance at a similar factor.
• The new facility has large upfront fees that wipe out the saving.
• You'd be refinancing just to free a little cash, not to cut the cost.

What to do next

1. Get written payoff figures for every advance you have.
2. Put the existing deal and each replacement into the offer checker, and for any renewal, price only the new cash.
3. Look at a term loan first, as it's usually the cleanest replacement.
4. Read can I pay off an advance early for what to check in the payoff terms.