How a Merchant Cash Advance Renewal Works
Short answer: A renewal is a new advance from your current funder that pays off what's left on the old one. Any purchase price left over goes to your business. The key figure is net cash to you, which is smaller than the headline offer.
An MCA renewal is a new advance from your current funder that pays off the old balance, with the rest of the purchase price going to you. The cash you receive is smaller than the offer, because the payoff comes out first.
Who should read this: owners who have received a renewal offer, and brokers evaluating one for a client.
Cost, credit, speed and stacking
Cost
Credit
Speed
Stacking
Why is the net cash on a renewal smaller than the offer?
The net cash is smaller because the new purchase price first pays off what you still owe on the old advance, and fees come out too.
The factor rate, though, applies to the full new purchase price, including the part that paid off the old balance. In effect, the business pays a new factor on money it already received once.
Put the renewal next to a Second position offer on the Comparison sheet before you decide. The two can land very differently.
Working out what a renewal really costs
Example: divide the new total cost by the net cash actually received.
| Step | Amount |
|---|---|
| New purchase price | $40,000 |
| Remaining balance paid off | $15,000 |
| Fees | $1,200 |
| Net cash to business | $23,800 |
| New purchased amount at 1.30 | $52,000 |
| New cost ($52,000 minus $40,000 purchase price, plus fees) | $13,200 |
| Cost per dollar of new cash ($13,200 / $23,800) | About $0.55 |
Compare that per-dollar cost with what the original advance cost per dollar. Renewals often come out more expensive on this measure, especially early in the term.
When is the cost per new dollar on a renewal highest?
The cost per new dollar is highest when a renewal comes early. A large balance is rolled into the new purchase price and charged a new factor.
Later renewals roll less and deliver more fresh cash.
Renewing while most of the balance is owed
Early in the term, most of the old purchased amount is still owed. A renewal then spends much of its purchase price on the payoff.
A renewal pitched at the halfway mark
At the halfway point, roughly half the old balance remains, depending on the contract. The renewal's new cash is the purchase price minus that payoff and fees.
Renew now or finish and reapply
Compare taking the renewal now with finishing the current advance and applying later. Waiting delivers less cash today but avoids a new factor on the rolled balance.
Early payoff discounts shrink the rolled balance
If the original contract discounts early payoff, the rolled balance is smaller. Ask for the payoff figure with any discount applied.
Fees charged again on the rolled balance
Some renewals charge origination fees on the full new purchase price, including the part that only pays off the old advance. Ask for fees on the new cash alone.
Early payoff discounts on the old balance in an MCA renewal
The old balance may or may not reflect a discount; it depends on the original contract.
Some agreements discount the remaining balance when paid early, and some require the full purchased amount. Ask for the payoff figure in writing and check it against the contract.
When does a renewal make sense?
A renewal makes sense when the new cash has a clear use. The cost per dollar should also beat a second position or other options.
It can also simplify things by keeping one funder and one debit. Renewing only because the offer arrived is the pattern to avoid.
The Factor rate guide shows why paying a factor on a rolled balance adds up.
Renewal offers, asked often
Owners weighing a renewal usually ask these.
When can I renew a merchant cash advance?
Each funder sets its own renewal timing. Often it waits until part of the current advance is paid on time. Some reach out proactively. You're never required to renew.
Is renewing cheaper than taking a second position?
Not always. A renewal charges a factor on the rolled balance. A second position leaves the first alone but adds a debit. Compare net cash, total cost and combined payments, file by file.
Can a different funder pay off my current advance instead?
Yes. A new funder can pay off the current advance as part of a new deal. It works like a renewal with a different funder, and the same payoff math applies. Compare the offers side by side.
Questions owners ask about this
How do I figure out net cash from a renewal?
Subtract the old balance and any fees from the new purchase price.
Is a renewal cheaper than the first advance?
Sometimes. Compare the cost of the new money, not just the factor rate.
Renewal or second position?
A renewal replaces the first advance, while a second position adds another debit.
Sources
- If a New York recipient pays off or refinances sales-based financing before full repayment, Section 803 of the Financial Services Law requires the provider to disclose whether any finance charge would still be owed (NYSenate.gov); that line matters on any MCA renewal.
Afterfirst is not a funder; all offers are subject to funder underwriting.
Check a renewal before you sign
- Get a payoff letter for the current balance, with any discount in writing.
- Work out the new cash: new advance minus fees minus payoff.
- Divide the renewal's cost by the new cash, not by the full advance.
- Compare the new payment with your slowest week.
- Ask whether a renewal carries new broker pay.
The renewal calculator does steps two and three. On a $50,000 renewal at 1.35 that pays off $20,000, the cost comes to about $0.64 per dollar of new cash, not $0.35. See also the early payoff calculator and negotiating the price.
Send one file.
See what fits.
Call 877-FUND-654 with questions.