Debt Consolidation Loan
A debt consolidation loan is a financing product designed to pay off existing high-cost debt (including stacked MCAs) and replace it with a single new obligation — typically at lower combined cost or extended payment timeline — providing structural relief for over-leveraged merchants.
Why This Matters
Consolidation loans serve merchants who've stacked into unsustainable debt service. The structure: a new lender pays off existing positions and provides a single new loan with restructured terms. Consolidation can be reverse consolidation (MCA-to-MCA, common in alternative finance) or traditional consolidation (term loan or SBA payoff of MCA stack). The economics work when underlying business is healthy and stacking caused temporary cash crunch — providing cash flow relief enables continued operations. Consolidation fails when underlying business is fundamentally distressed and just delays inevitable default.
Frequently Asked Questions
Frequently Asked Questions
How does debt consolidation differ from reverse consolidation?
Reverse consolidation specifically refers to MCA-to-MCA refinancing — a new MCA pays off existing stacked MCA positions. Debt consolidation more broadly includes any product (term loan, SBA, line of credit) refinancing existing debt. Both seek the same outcome of structural relief through lower debt service.
When should an MCA borrower seek consolidation?
When combined daily debt service from stacked positions exceeds 30-40% of monthly revenue and threatens operational viability. Earlier consolidation (before default) yields better outcomes than post-default workout. Many merchants delay seeking consolidation until cash crisis forces action — earlier intervention typically produces better results.