Reverse Consolidation

Break the Cycle of Cash Advances

How Does a Reverse Consolidation Work?

It’s a way of consolidating multiple cash advances different from traditional buyout consolidation. As opposed to buying out the positions, a week by week disbursement of the funds needed to satiate the weekly or daily payments of the previous loans, and in return a smaller payment is required over a longer period of time. This is a way to create breathing room for the business by extending the term, but by also make it much easier for Cast Capital to approve higher amounts of debt, since the funds are being dispersed weekly as opposed to all at once. Effectively, it’s a way to lower payments 40% to 60% while simultaneously reducing risk.

Daily Cash Flow Savings

30% - 40%

Designed for Stacked Borrowers

Ideal for consolidating multiple advances

Break the Cycle of Cash Advance

Lower Payments and Net Cash on Top

How Does it Differ from a Regular Consolidation?

A standard buyout consolidation involves a lender paying out the lenders responsible for each position, and creating a new, single payment plan to the lender who provided the buyout. This option requires communication between lenders and can prove to be more difficult. Also, the consolidating lender assumes all the risk in paying off other advance companies, because these companies can come back to the business owner and stack them once more, therefore risking the consolidator’s investment.

With a reverse consolidation, since enough funds are being injected on a weekly basis to cover all existing debt payments, the lenders responsible for the stacked positions are drawing payment as usual.

The Reverse consolidation also enables a Cast Capital to approve higher amounts of debt and effectively pull more businesses out of unhealthy situations. Better chances of being approved for higher amounts means even netting cash on top while also lowering your payments. When a business is in a real pinch with multiple positions of debt while also having a need for operating cash, the Reverse Consolidation is the best option.

The Problem

You find yourself needing to procure some capital for business, either to take on an advantageous opportunity or to cover an unforeseen expense. Ideally, you’d like to search for the best rates that you could qualify for so you can assure success and ample breathing room. You also know that if you have a longer term,(which is usually harder to qualify for), you will have lower payments, also creating breathing room. This all seems like a good idea at face value, so you go ahead and pull the trigger. You put your funds to use and have a manageable time with the payments. A few months later, you find yourself in the same or similar position as you were before taking on the funds. You need more money.

“It’s not easy seeing that far into the future. A Lot of borrowers don’t understand that when they borrow cash over a longer term, that they will most likely run into issues if they need more cash within the terms of their first loan. Once you already have one position, the terms that you will receive on a second position will be much less affordable.”

-Matthew Elling, Founding Partner

The reason for this being: now that you have a balance and a percentage of your income serviced to debt, the lender cannot underwrite your business the same way. There is more risk involved when any percentage of your income goes to debt along with other everyday business expenses. There is less room to borrow more money.

As you accumulate more positions, the rate and term length will be affected exponentially.

In simple terms, rate and term length are determined by risk. Having stacked cash advances spells risk.

Ratio of Income Serviced to Debt and the Concept of Leverage

There is a rule of thumb for a safe ratio of income serviced to debt. If your business is grossing 100k on a monthly basis, and each month you are paying under 20k in debt payments, you are considered to be kosher in the eyes of this ratio. However, if you are paying more than 20k, or 20% of your gross revenue, you are at risk of suffocating. Although this is a rule of thumb, some brokers and lenders find creative ways to get business owners approved for a second position that would put them above that debt to revenue ratio. This is a dangerous move.

The way to calculate your debt-revenue ratio is by taking your total payments daily, multiply that by 21, and divide that by your average monthly gross revenue.

Another helpful rule of thumb is the monthly gross revenue’s relationship with the approval amount. A borrower shouldn’t be in more debt than they make on a monthly basis. This is called being over-leveraged. This isn’t as dangerous as breaking the debt-revenue ratio, but it is a symptom of stacking multiple cash advances, which is overall a bad move.

If you are in a position such as the one we have described, consider looking into this option before you take another position. We have seen a multitude of businesses go under from irresponsible cash advance borrowing practices, and would have been able to save them if we had been in contact before they were pigeonholed into another advance.