How to Qualify for a Merchant Cash Advance | SMB Compass
Ezra Cabrera | October 8, 2019
Business owners often need immediate financing to fund short-term expenses, such as unforeseen damage, taxes, debt, and more. However, it can be challenging for some businesses to secure funding from banks and traditional lenders. When this is the case, a merchant cash advance (MCA) can be the perfect solution for companies in need of additional funding.
Related: How a Merchant Cash Advance Can Help Grow Your Small Business
Contrary to popular belief, a merchant cash advance is technically not a loan, but an advance against your future credit card transactions. Lenders give you a lump sum amount which you can repay through an automated deduction of credit card sales.
While it’s relatively easier to qualify for an MCA, some haven’t fared well. Many lenders now scrutinize MCA applications. Some factors they consider are credit card sales, average monthly sales amount, and other financial factors that affect your application. To increase your chances for approval, here are five effective tips you can follow:
1. Determine if an MCA is Right for Your Business
Prior to applying for a merchant cash advance, it’s important to determine if an MCA is suitable for your business. If a majority of your daily sales are paid through credit card transactions, you’ll be able to qualify for an MCA. Service-oriented businesses, restaurants, and retail companies are some of the many industries that can benefit from a merchant cash advance. If you don’t accept credit card payments or most of your sales are in cash, it’s better to choose a different funding solution.
2. Demonstrate Strong Daily Sales
Generally, businesses with negative balances will not qualify for financing. But if you want the best terms for your cash advance, you need to demonstrate high daily sales. If MCA providers can see that your company has consistently high balances that’s enough to cover a cash advance, they’re more likely to approve your application. Additionally, they may also offer lower rates and longer terms compared to applicants with lower daily sales.
3. Be Mindful of Your Transaction History and Bank Statements
Transaction history and bank statements are important factors that MCA providers consider during calculating and underwriting an advance. They’re going to check your company’s previous and current transaction history. If they see that your company has multiple cases of insufficient funds or bounced checks, they will most likely deny your application. Since cash advances are paid through credit card sales, companies that have trouble meeting financial obligations are in the red. For this reason, it’s important for your company to avoid negative balances.
4. Prepare Previous Credit Card Statements
MCA providers often ask to see your previous credit card statements before approving your cash advance. The number of credit card statements needed depends on the lender you’re working with, so best to ask them prior to applying. Lenders need to see the exact amount of credit card sales you’re getting each month in order to ensure you have the ways and means to repay the cash advance.
5. A Decent Credit Score
Your credit score is a reflection of your payment history to creditors. If you qualify for a merchant cash advance, the MCA provider will be your new creditor. As your new creditor, they would want to check your credit score to determine the risk of your advance. You don’t necessarily need perfect credit, but if funding providers see insufficient credit history, bankruptcies, or previous loan defaults, you will most likely be denied a loan. For this reason, it’s essential you keep your credit score as high as possible, especially if you’re planning to apply for traditional business loans in the future. While many MCA providers offer to fund high-risk borrowers, good credit is essential in getting great terms and rates.
6. Shop for the Best MCA Rates
Not all merchant cash advance companies are created equally. With thousands of lending companies that vary in fees and rates, picking the best one for you can be overwhelming. However, choosing the right merchant cash advance can save your business from 20% to 30% compared to taking the first MCA offered to you. That said, it’s important to shop for the best rates in the market. The most viable option is to seek help from a financial specialist because they will thoroughly assess your business before pairing you with a lender and loan product that’s suitable for you.
Apply for a Merchant Cash Advance Today!
Keep in mind that a merchant cash advance often costs more than a traditional business loan. But if you’re looking for fast funding, an MCA is a better option. Depending on the lender you’re working with, your business can be funded within hours rather than weeks or months.
An MCA is also perfect for companies that don’t qualify for bank loans. MCA providers are not too particular with credit scores (although some providers consider them) as long as you meet the required number of credit card transactions.