The Exit Requires a Replacement
Paying off a merchant cash advance is not simply a matter of finding the funds. It requires replacing the MCA structure with something the business can actually carry, and the right replacement depends on the business's credit profile, asset base, revenue consistency, and how long the advance has been active. A product that eliminates daily debits but installs payments the business cannot make in month three has not solved the problem.
Conventional Bank Term Loans
A bank term loan offers the lowest cost of capital available to qualified businesses, typically in the range of prime plus two to five percent for well-credentialed borrowers. The qualification threshold is the limiting factor. Banks require two to three years of tax returns, a credit score above 680 for the principal owners, adequate collateral, and a debt service coverage ratio that accommodates both the new loan payment and any residual obligations. Businesses that qualify for bank financing rarely needed MCA funding in the first place, which is the quiet paradox that sits at the center of this market.
The fundamental tension in MCA exit financing is that the businesses most in need of lower-cost replacement capital are the least able to qualify for it under standard underwriting criteria.
SBA 7(a) Loans
Under SBA SOP 50 10 8, which took effect in mid-2025, proceeds from a 7(a) loan cannot be used to directly retire MCA or factoring debt. The loan can still be obtained for qualifying purposes while MCA obligations remain outstanding, and the infusion of capital may enable a business to retire the advances from operating cash flow. The path is indirect but available to businesses that can demonstrate the qualifying use of proceeds and satisfy the debt service coverage requirement with the MCA payments included in the calculation.
Business Lines of Credit
A revolving line of credit from a bank or fintech lender provides flexible capital that can be drawn to retire MCA balances and then repaid at the business's pace, subject to minimum payment requirements. The interest rate is typically substantially lower than an MCA factor rate, and the structure does not involve daily debits against the business checking account. Fintech lines of credit are more accessible than bank lines but carry higher rates, and the underwriting usually requires at least six months of bank statements and a minimum monthly revenue threshold.
Invoice Factoring
Invoice factoring is not a loan in the traditional sense, but it functions as a replacement for MCA financing for businesses with substantial accounts receivable. A factoring company advances a percentage of outstanding invoice value, typically between 80 and 90 percent, and collects directly from the business's customers. The fee structure is tied to invoice face value rather than a factor rate on principal, and for businesses with payment cycles of 30 to 60 days, factoring can produce more predictable cash flow than the daily debit arrangements attached to advances. The tradeoff is that customer relationships become visible to and partially managed by the factoring company.
Equipment Financing
A business that took MCA funding to acquire or repair equipment has an alternative path available after the fact. Equipment that has been purchased can serve as collateral for a secured equipment loan, with proceeds used to retire the advance that funded the acquisition. The equipment secures the loan, which reduces the lender's risk and typically produces a lower rate than the advance. The limitation is that the equipment must hold sufficient appraised value to secure the loan amount, and depreciation in the months since purchase may have narrowed that margin.
Revenue-Based Financing
Revenue-based financing is structurally similar to a merchant cash advance in that repayment is tied to a percentage of monthly revenue rather than a fixed payment. The material difference is in cost. Revenue-based financing products offered by established fintech lenders typically carry factor rates in the range of 1.15 to 1.30, compared to MCA factor rates that frequently exceed 1.40 or 1.50. For businesses that cannot qualify for fixed-payment financing because of revenue volatility, revenue-based financing can retire an expensive advance and replace it with an obligation at lower total cost, provided the underlying revenue problem has been addressed.
Consultation is where that assessment begins, because the product that appears cheapest on a term sheet is not always the one that leaves the business in the best position twelve months later.
