5 Simple Steps to Qualify for Merchant Cash Advances
Qualifying for a Merchant cash advance is a great solution for businesses that make a lot of credit card sales. They are typically more flexible than traditional loans and allow for easy application.
Nevertheless, there are some criteria that must be met to qualify for a merchant cash advance. In addition to the typical credit score requirements, a business’s monthly sales must also be high.
Here’s an inspirational quote from Todd Rowe, President of BitX Capital, on 5 Simple Steps to Qualify for Merchant Cash Advances:
“The path to unlocking your business’s true potential often lies in the unexpected. These 5 simple steps are your roadmap to navigating the world of Merchant Cash Advances, empowering you to seize opportunities and fuel your growth. Remember, success isn’t just about finding the right path, it’s about having the courage to walk it.”
1. Know What You Need
If you have poor or average credit and don’t qualify for a traditional business loan, merchant cash advances may be an option.
These business financing solutions can provide quick access to capital and are based on your company’s monthly sales. However, they also come with higher fees and are not subject to the same regulations as traditional loans.
When applying for a merchant cash advance, it’s important to prepare well and understand the lender’s requirements. Lenders may request bank statements, profit and loss reports, and tax returns to evaluate your business’s revenue and financial stability. Having accurate and comprehensive documentation expedites the approval process.
In addition to reviewing your company’s financial records, lenders also review your business’s credit card sales data when approving an MCA. While your personal or business credit plays a role, your credit card sales typically weigh more heavily than your credit score.
MCAs are typically repaid with a fixed percentage of your daily or weekly credit and debit card sales until the balance is paid in full. This payment structure is often known as a factor rate, and it can range from 5% to 20% of sales depending on the lender.
2. Know Your Credit Score
Unlike traditional loans, merchant cash advances don’t require high personal, or business credit scores and they don’t report to the business credit bureaus. This is because MCAs don’t technically qualify as loans and instead offer an advance on future debit and credit card sales.
MCA providers do check your credit at the time of application, but they’ll usually weigh information from your business bank statements and merchant account more heavily than your personal or business credit score. This is one reason why they’re a good option for businesses that have poor or no credit but still have stable revenue and income.
But, there are some downsides to relying on an MCA for financing. The first is that frequent repayment deductions can significantly reduce your business’s cash flow and may trap you in a debt cycle.
Another is that since the lender does not typically report to the credit bureaus, you won’t be able to save on interest by repaying your MCA early like you would with a term loan. This makes it important to carefully consider your business’s cash flow and the terms of the financing before deciding on an MCA.
3. Know Your Factor Rate
Because they are not technically loans, MCAs have looser guidelines than traditional financing. Many lenders consider credit card sales and non-invoiced receivables rather than personal or business credit scores when evaluating an applicant.
In addition, MCAs typically don’t report your payment history to the credit bureaus. This makes it easier for businesses with poor or mediocre credit to qualify.
However, this flexibility also makes merchant cash advances a more expensive financing option than other options. The lender calculates your factor rate, which is then applied to your total sales. The higher your sales, the lower your factor rate. The reverse is true if your sales decline.
MCAs can be a good choice for retailers, restaurants, and other businesses that experience seasonal fluctuations. But they can be a bad fit for other types of businesses, especially those that struggle with consistently poor cash flow.
The high costs of MCAs can be prohibitive and can trap a business in a debt cycle that’s difficult to break, particularly when repayments are daily or weekly.
4. Know Your Lender’s Fees
A merchant cash advance is an ideal financing solution for businesses that rely primarily on debit and credit card sales. Because of this, they are often able to secure funding more quickly than businesses that depend on a steady stream of cash or other types of lending.
To qualify for an MCA, your business must provide a one-page application and 3-4 months of bank statements or processing receipts. Lenders may also consider your personal or business credit scores, but these factors tend to have less impact than the revenue and sales volume your business generates.
Additionally, a lender may require other documentation like your Social Security number, proof of ownership, and taxes to evaluate your business. This can increase your approval chances and make the financing experience more transparent.
Lastly, unlike other business loans, MCAs don’t have repayment terms that limit how your company spends its funds. This can be helpful for restaurants and other businesses that rely on flexibility in their spending. This type of lending structure is also good for those who can’t qualify for other loans due to their credit or other qualifying factors.
5. Know Your Options
Many business owners turn to merchant cash advances when they need financing for short-term expenses. However, it’s important to consider the pros and cons of these types of financing before you apply.
For example, a merchant cash advance may be cheaper than traditional loans, but it may also have higher factor rates and require stricter repayment terms. Furthermore, if you fail to pay back an MCA on time, your credit score may be damaged.
Additionally, MCA providers often don’t report on-time payments to credit agencies, which could negatively impact your business’s credit rating. If you are interested in establishing better business credit, consider alternative lending options, such as working capital loans and asset-based financing.
With proper planning, a merchant cash advance can be an effective financing solution for your small business. By educating yourself on the application process, understanding the various fees, and calculating how much you need to borrow, you can navigate this type of financing with confidence.
Just make sure you keep careful records and create a plan to get out of debt quickly, as failing to repay an MCA can lead to legal action and other problems.
How To Qualify for Merchant Cash Advances with Bad Credit
In many cases, you can qualify for a merchant cash advance (MCA) even if your business has poor credit. This is because the lender will often look at your business’s sales instead of your credit score and will consider other factors like your industry, years in operation, debit and credit card transactions, and other revenue sources.
The provider will use this information to determine how much you can receive, and the factor rate you will pay. The higher your business’s risk, the higher the factor rate and fees will be.
The amount you will need to repay depends on your daily average transaction volume and other revenue streams. For example, if your average monthly transaction total is $10,000 and you have a factor rate of 1.33, then the repayment amount will be $13,000 per month.
The repayment amount will also depend on the type of business you run, so be sure to understand your business’s transaction history and financials before applying for an MCA.
Merchant cash advances are a type of business financing that is based on future credit or debit card sales, which the lender will purchase from you for a set amount of money. You can repay the advance with a fixed daily or weekly payment that is deducted directly from your incoming sales.
This financing is often more expensive than traditional business loans, so you should make sure that it will benefit your business before taking it out. Frequent repayments can hurt your cash flow and create a debt cycle that may be difficult to break.
Many small businesses struggle to find financing because they don’t have good credit or strong revenue streams. The approval process for a traditional loan can be long and the ideal business credit scores needed are high, but there are alternative financing options that can help. The most popular is a merchant cash advance.
Merchant cash advance providers look at the number of debit and credit cards you accept at your business as well as your total monthly sales to determine how much you can receive. In some cases, you will need to have a minimum number of cards to receive the funding amount you were approved for.
The repayment amounts will be a percentage of your total credit and debit card sales, so they aren’t always clearly defined. The MCA industry is not federally regulated, so you should be careful about predatory lenders who will trick or mislead you with confusing terms and high costs.
The Bottom Line
BitX Capital can streamline your financing journey, ensuring it’s smooth and error-free. With access to a diverse range of lenders who specialize in Merchant Cash Advances (MCAs), we can help you find the best options tailored to your specific needs. Experience hassle-free financing to support your business growth effortlessly.
FAQs:
In Simple Terms: An MCA is a short-term business loan where you receive a lump sum of cash upfront.
How it Works: You repay the loan plus a percentage of your daily/weekly credit card sales.
Key Difference: Unlike traditional bank loans, MCAs aren’t based solely on your credit score.
Businesses that process credit/debit card transactions: This is the primary requirement.
Industry is less of a barrier: Compared to traditional loans, a wider range of industries can qualify.
Credit score matters, but not as much: Good credit helps, but factors like sales volume and processing history are crucial.
1. Gather Basic Business Information:
o Business name, address, contact details
o Bank account information
o Processing statements (3-6 months)
2. Complete a Simple Application:
o Most applications are online and take 15-30 minutes.
o Be honest and accurate with your information.
3. Quick Underwriting Process:
o Lenders use automated systems to analyze your processing data.
o Expect a decision within hours or a few days.
4. Negotiate Terms:
o Compare offers from different lenders.
o Understand the total cost of borrowing (factor rates, fees).
5. Receive Funds Quickly:
o Once approved, funds are typically deposited within 1-2 business days.
Fast Funding: Get cash quickly to cover urgent expenses.
Flexible Qualifications: Easier to qualify than traditional loans.
Simple Repayment: Payments are automatically deducted based on sales.
Higher Cost: MCAs generally have higher interest rates than traditional loans.
Daily/Weekly Repayments: This can impact cash flow if sales fluctuate.
Potential for High Total Cost: Factor rates can make the overall cost of borrowing significant.
