Signs it is time
- The payments take a large share of each week's deposits
- A new advance is being taken to make the payments on the old ones
- The account runs negative on payment days
- Growth has stalled because the payments leave nothing to invest
Refinancing into a longer-term loan
If the business has steady revenue and the owner's credit has held up, a term loan can pay off every advance and replace the daily debits with one payment spread over several years. It is the best outcome when it is available. SBA loans can refinance some business debt, including advances in certain cases, though they take weeks to close.
A consolidation advance
A consolidation funder pays off the existing advances, or takes over their payments, and the business makes one smaller payment, often weekly instead of daily, over a longer term. It costs money in its own right and adds a new position, so the terms need to be read closely: the total repaid, the payment, and what happens to the balances it takes over.
Negotiating with the current funders
Many funders would rather agree a reduced payment than see a business default. If the business can show that sales have fallen, a funder may lower the daily amount and extend the term. Any change should be agreed in writing before payments change.
Be careful with settlement companies
Some debt settlement companies advise businesses to stop paying their funders while they negotiate. That can put the business in default, lead to lawsuits and, in some states, to frozen accounts, and the settlement company's fees come on top. It is worth understanding these risks fully before signing with one.
What to gather
- Every advance agreement
- The current balance, payment and frequency of each
- The last three to four months of business bank statements