Merchant Cash Advance in Fourth Position
A fourth position merchant cash advance is one more advance on top of three still being paid. Few funders review these files, and the ones that do keep the amount small and the term short. Before taking one, compare it with waiting for an advance to clear, consolidating, or a reverse consolidation.
What four debits do to a month
Each new position takes a slice of the same deposits before anything else gets paid. With four, the question is less whether the business can qualify and more whether the account still works on a slow day.
A smaller slice of each deposit is yours
Rent, payroll and stock come out of what's left after four funders take their payments. The share left is the number to watch, not the size of the new advance.
Payments that end at different times
Four advances rarely end together. Some will clear within weeks while others run for months, so the load changes as each one drops off.
The newest debit costs the most
The fourth funder collects last and prices for it. A small advance at a high factor over a short term produces a very high estimated APR.
A worked example with four positions
Example: deposits of $200,000 a month, about $9,524 each business day. Three open advances take $700, $450 and $300 a day, with $56,000, $27,000 and $9,000 left to pay. A fourth offer is $15,000 at a 1.49 factor over 60 business days, or $372.50 a day.
| Line | Daily debit | Business days to clear | Share of an average month |
|---|---|---|---|
| First advance | $700 | 80 | 7.4% |
| Second advance | $450 | 60 | 4.7% |
| Third advance | $300 | 30 | 3.2% |
| Three open together | $1,450 | — | 15.2% |
| Fourth offer | $372.50 | 60 | 3.9% |
| All four | $1,822.50 | — | 19.1% |
The fourth offer pays back $22,350 for $15,000, a cost of $7,350, or about $0.49 per dollar received. Over 60 business days the estimated APR comes out near 356%. In a month 20% slower, all four debits would take about 23.9% of deposits.
How funders size a fourth position
With three debits already running, little room tends to be left. Each funder sets its own limits, so treat the points below as the questions a file gets asked, not as rules.
Room after three debits
The funder adds the three open payments and checks what share of deposits they take on slow days. The new payment has to fit inside whatever limit it uses for the total.
The shortest balance sets the clock
When the earliest open advance clears matters a great deal. In the example, the third advance finishes in about 30 business days, and the stack gets lighter after that.
Short terms and smaller amounts
Fourth position offers tend to be small and to end quickly, sometimes before the longest open advance. Weekly payments are common on these files.
Options next to a fourth position
- Wait for a balance to clear. In the example, the $300 debit ends in about 30 business days, freeing nearly as much daily room as the fourth offer would use, at no cost.
- Ask an open funder about a renewal. A funder whose advance is well paid down may roll new cash into one contract. See renewals and add-ons.
- Consolidate. One new advance pays off some or all of the open balances and replaces several debits with one. See MCA consolidation.
- Reverse consolidation. A funder deposits money that covers the existing payments, then collects one smaller payment over a longer term. See reverse consolidation.
Risks of a fourth position
The risks of stacking grow with each position, and at four they tend to arrive together.
- Contract conflicts. Three earlier contracts may each limit new financing, and breaking any of them can count as a default.
- One slow day hits four funders. A short week can set off returned payments on several advances at once.
- Blended cost. Add every remaining payback and divide by the cash all four advances put in your account. That figure climbs fast once a fourth is added.
- Workout pressure. If debits outrun deposits, owners end up working with several funders at once. See how to get out of MCA debt.
Questions for a fourth position offer
- When does each open advance clear, and what does the stack look like then?
- What do all four payments take from the slowest month on my statements?
- Does any of the three open contracts limit new financing?
- What would a consolidation or a reverse consolidation cost next to this offer?
FAQ
Do funders offer fourth position advances?
Some review them, but far fewer than for a second or third. Files that get a look show clean payment history on all three open advances and deposits that have grown.
Why are fourth position terms so short?
The fourth funder stands behind three others, so it wants its money back quickly, sometimes before the earliest open advance clears. Short terms mean bigger payments per day.
Is waiting a real option?
It can be. When one open advance is close to paid, waiting a few weeks frees its whole debit at no cost. Check the balance and payment on each one first.
Can a reverse consolidation replace a fourth position?
It can ease the same squeeze. Instead of adding a debit, a funder makes deposits that cover existing payments and collects one smaller payment over a longer term. It costs money too, so compare both on total payback.
Looking at a fourth advance?
Call 877-FUND-654 with every open contract in hand. We call you back, usually the same business day, and we always talk with you before we shop your file.