How do I refinance a cash advance that is squeezing my cash flow?

Refinancing a cash advance means taking new finance that pays off the old advance in full, so you are left with one facility and one repayment. It helps when the new money is cheaper per year or spread over a longer term the business can comfortably carry. It does not help if all it does is pay the old advance's remaining fixed cost and start a new one at the same price.

The trap to understand first

On a loan, paying off early saves the interest you have not yet incurred. On most cash advances, the total repayable is fixed, so the settlement figure is simply what is left of that total. See can I repay an advance early.

So refinancing an advance usually means:

1. You pay the old funder everything still owed, including the remaining cost.
2. You take on the full cost of the new facility.

If the new facility is another short, expensive advance, you have paid twice for the same cash.

When refinancing makes sense

• Two or more advances running. Replacing them with one facility cuts the daily drain and the admin. Our funding partner looks at companies with two or fewer loans or advances running.
• Daily repayments are hurting. A longer-term loan with a monthly repayment can be much easier on cash flow.
• The new money is cheaper per year. Converting both to an APR is the only fair comparison.
• The old contract has an early settlement discount. Then the old cost actually goes down.

A worked comparison

Take a £50,000 advance at a 1.35 factor over 6 months, paid daily: 126 payments of £535.71, about 126% APR. Halfway through, roughly £33,750 of the £67,500 total is still owed.

A £100,000 business loan at 18% APR over 24 months costs £4,992.41 a month, £19,817.84 in interest in total. If a loan like that settled the advance and covered a further need, your monthly outgoing would be a single predictable figure instead of a daily debit of about £535.71 (roughly £11,250 a month at 21 business days).

Whether that works depends on whether you qualify for the loan, and on the figures in your actual offers. The point is the method: compare monthly cash and total cost, not the headline rate.

Sterling's take: refinance to fix the shape of your repayments, never just to get more cash on top of the same problem.

Questions to ask before you refinance

• What is the exact settlement figure, and until what date?
• Does the old contract have an early settlement discount?
• Will the new funder pay the old one directly?
• Is there a personal guarantee or debenture on either facility, and how do they interact?
• What is the APR of the new facility, and the total cost over its term?

What to do next

Get a written settlement figure from your current funder. Put the old advance and the new offer side by side in the offer checker. If you are considering a second advance instead, read can I take a second cash advance first, and compare longer-term options in the business loans guide.