Can You Use More Than One Merchant Cash Advance at a Time? Risks to Avoid

Merchant cash advances, sometimes called MCAs, are a type of financing where a company gives you cash upfront in exchange for a percentage of your future credit card sales. They can seem like quick and easy money when you’re in a cash crunch, but taking out multiple merchant cash advances at once can be super risky. Here’s what you need to know about the dangers of using multiple MCAs at the same time, and how to avoid getting trapped in a vicious debt cycle.

What is a Merchant Cash Advance?

First, let’s quickly go over what a merchant cash advance is.

An MCA works kinda like this:

• You apply to an MCA company and give them access to your credit card sales data
• They assess how much money you’re bringing in each month
• They offer you a lump sum of cash upfront – let’s say $50,000
• In exchange, they take a percentage of your daily credit card sales – usually around 10-20% – until the $50,000 is paid back plus fees

So basically, they are advancing you cash now based on the credit card sales you’ll make in the future.

The fees are where MCAs get really expensive. The company charges you a factor rate, which is like an interest rate but not technically the same thing. Common factor rates are 1.2 to 1.5, meaning if you get a $50,000 advance at 1.5, you’ll owe $75,000 total when it’s paid off.

The payments come out of your credit card sales daily until it’s fully paid. There’s no set repayment term – it lasts until the full amount is repaid.

Why Do Businesses Use MCAs?

Small businesses often turn to MCAs when they need cash quickly and can’t get approved for a bank loan or line of credit.

Compared to traditional loans, MCAs have some advantages:

• Fast approval, sometimes in just 24-48 hours
• Based on credit card sales, not personal credit scores
• No collateral required

For a business owner who needs money ASAP, MCAs can seem like the perfect solution when other options aren’t available.

The problem is, they come with huge risks if you use multiple at once or can’t pay them back quickly.

The Risks of Using Multiple MCAs

Taking out more than one MCA at a time can put you in a dangerous debt cycle. Here are some of the biggest risks to watch out for:

Sky-High Interest RatesThe factor rates on MCAs are extremely high, often over 100% APR when calculated as interest. If you have multiple MCAs at the same time, those rates multiply quickly.

Short Repayment TermsMCAs take a percentage of your daily credit card sales, so they’re paid off faster when your sales are higher. This can drain your cash flow quickly if you have multiple MCA payments hitting your account every day.

No OversightMCA companies aren’t regulated like banks, so they can charge insanely high rates. And if you default, they can debit your account at will or send your debt to collections.

Confusing ContractsMCA contracts are notoriously confusing, with vague terms open to interpretation. Multiple contracts make it harder to understand what you really owe.

Debt SpiralIf you can’t pay off your first MCA quickly, you may need to take out another to keep up with payments. This debt spiral leaves you owing far more than you borrowed.

As you can see, using multiple MCAs simultaneously amplifies all the risks. It’s a recipe for getting trapped in an endless debt cycle.

Real-Life Example of MCA Debt Gone Wrong

Let’s look at a real-life example of how using multiple MCAs can go horribly wrong.

John owned a small restaurant in Los Angeles. One summer, business was slower than expected. John took out a $50,000 MCA to cover expenses.

The payments were manageable at first. But when business didn’t pick back up, John started falling behind on the daily payments.

He took out a second $30,000 MCA to keep up with the payments on the first. But with two sets of daily payments hitting his account, his cash flow took a nosedive.

Soon John had to take out a third MCA just to cover payroll and keep the restaurant open. At this point, huge chunks of his daily credit card sales were going to pay off the advances.

After a few months, John had to close the restaurant. He ended up owing over $200,000 – four times what he borrowed – and the MCA companies were ruthlessly debiting his accounts.

John’s story shows how using multiple MCAs at once, especially without a plan to pay them back, can destroy a business.

Tips to Avoid MCA Debt Problems

If you need short-term cash for your business, how can you avoid catastrophe? Here are some tips:

• Explore all other options first like business loans or lines of credit
• Only use MCAs as an absolute last resort
• Have a solid plan to pay off the first MCA quickly
• Avoid taking out a second MCA at all costs
• Consult a lawyer to review the MCA contract thoroughly
• Work with the MCA provider to modify terms if you fall behind
• Consider business debt consolidation if you’re struggling with payments

While MCAs can sometimes provide needed cash in a pinch, using multiple at once is extremely high-risk. Avoiding this debt trap takes careful planning and extreme caution.

Alternatives to Multiple Merchant Cash Advances

Rather than digging yourself deeper with multiple MCAs, here are some smarter funding options to consider:

SBA Loans – Government-backed small business loans with reasonable rates and terms

Business Credit Cards – Revolving credit for flexibility; build business credit to increase limits

Business Lines of Credit – Pre-approved borrowing you can access as needed

Invoice Factoring – Sell unpaid invoices to get cash faster

Equipment Financing – Finance new equipment over time; preserve capital

Crowdfunding – Raise small amounts from customers and supporters

Owner Investment – Inject your own savings if possible

The Bottom Line

While merchant cash advances can be helpful for occasional short-term needs, using multiple MCAs simultaneously puts you at high risk of unmanageable debt. Before considering multiple advances, look at all other business funding options and have a solid repayment plan. With caution and careful planning, you can meet your financing needs without the dangers of MCA debt spirals.

Frequently Asked Questions

Can you have more than one merchant cash advance at a time?

Technically yes, you can have multiple merchant cash advances at once. But this is extremely risky and not recommended, as it can easily lead to crushing debt burdens.

How soon can you get another merchant cash advance?

Most MCA providers allow you to apply for another advance as soon as you pay off the first. However, it’s wise to wait several months to apply again, rather than taking out back-to-back MCAs.

What happens if you default on a merchant cash advance?

If you default, the MCA provider can continue debiting your accounts involuntarily, send your account to collections, or potentially sue you. They may also contact your customers asking them to redirect payments.

Can you consolidate merchant cash advances?

Yes, consolidating multiple MCAs into one loan can sometimes help manage payments. Options include business term loans, SBA loans, or business lines of credit.

Should you ever take out more than one merchant cash advance?

You should avoid taking out multiple MCAs at all costs. The risks and costs typically outweigh any temporary benefits of getting quick cash.