Reverse Consolidation
Reverse consolidation is a debt restructuring product where a new funder pays off a merchant's multiple existing MCA positions and replaces them with a single, often longer-term advance at typically lower combined daily payment — designed to rescue stacked or distressed merchants.
Why This Matters
Reverse consolidation emerged as the MCA industry's solution to the stacking crisis. Stacked merchants paying $1,500+ daily to multiple funders couldn't sustain operations; reverse consolidation programs offer to pay off existing positions and replace them with single restructured deals at lower daily payment ($500-$800). The economics work for the consolidator (longer payback, premium factor rate) and the merchant (immediate cash flow relief). Risk for the consolidator is high — stacked merchants are by definition stressed — so reverse consolidation programs charge premium rates (1.45-1.70 factor) and require strong documentation of revenue and operations.
Example
Merchant with 3 stacked positions paying $1,400 combined daily. Reverse consolidation funder pays off all three ($75K total), replaces with $90K new advance (covers original payoffs plus added capital) at 1.55 factor, 12-month term. New daily payment $400 — saves merchant $1,000 daily. New funder gross margin: $49,500 over 12 months on $90K capital deployed.
Frequently Asked Questions
Frequently Asked Questions
Is reverse consolidation effective at preventing default?
Mixed results. Best outcomes when underlying business is healthy and stacking caused temporary cash crunch. Worst outcomes when underlying business is distressed and additional capital just delays inevitable default. Default rates on reverse consolidation deals run 25-45%, materially higher than first-position MCA.
Who funds reverse consolidation?
Specialty funders willing to accept high-risk positions at premium pricing. Some general MCA funders offer reverse consolidation as a separate program tier. The capital comes from funders comfortable with elevated default exposure in exchange for elevated factor rate returns.