What Is MCA Reverse Consolidation?
Reverse consolidation is when a new funder provides a larger advance used to pay off your existing MCA obligations, replacing multiple daily payments with a single payment to the new funder. The new funder takes first-position UCC lien and pays off existing funders directly.
How It Works
A reverse consolidation funder evaluates your current obligations, revenue, and ability to sustain a single consolidated payment. If approved, the new funder advances enough to pay off all existing MCAs. Existing funders file UCC-3 terminations. The new funder files its own UCC-1 in first position. You make one payment instead of multiple.
Potential Benefits
The primary benefit is cash flow simplification. Instead of four or five daily withdrawals from different funders, you have one. The total daily payment may be lower than combined existing payments. Having a single funder simplifies financial management.
The Risks and Downsides
- Higher total cost. The new funder charges a factor rate on the entire consolidated amount including payoff balances that already include premiums. You are paying a premium on top of a premium.
- Longer repayment. Usually a longer term, meaning more months of payments.
- Same underlying problem. If your business cannot sustain MCA payments, replacing multiple MCAs with one larger MCA does not solve the fundamental issue.
- Stacking by another name. You are effectively taking a new advance to pay old ones, which is the same dynamic that creates stacking problems.
Better Alternatives
Before pursuing reverse consolidation, explore settlement negotiations where you may pay 30 to 60 cents on the dollar. Explore legal defenses that may reduce or eliminate obligations. Explore traditional refinancing through bank or SBA products. Reverse consolidation should be considered only after these alternatives are exhausted, with clear understanding that it increases total debt even though it simplifies payments.