If you run a small business, getting the right funding can be one of the most significant challenges you face. One option that a lot of people turn to is a merchant cash advance. Compared to a loan, an MCA can be easier to qualify for even if you have less than perfect credit. However, even with the alternative qualification requirements, it is important to understand the application process before starting.
What Is an MCA?
Despite its similarities, an MCA is not a loan. Instead, the financing company is buying your future sales from you. Typically, this is done with your merchant account that you use for accepting credit cards. In some cases, the provider will take repayment directly from your merchant account as a cut of the sales. Typically, there is a set amount per day, week or month until you have repaid the amount plus fees.
Preparing To Apply
Before you start applying to one or more MCA providers, you will need to know the answers to a few questions. Getting the appropriate documentation ready in advance will make applying easier and approve your odds of success.
- Entity Type: To get an MCA, you will typically need to have a separate business entity such as an LLC or corporation. Some providers will work with sole proprietors, but this is less common.
- Operating History: Most providers expect that you have been operating at least three to four months using the merchant account. If you have less history than that, you will likely be rejected.
- Sales Volume: This is perhaps the single most important qualification for getting approved. If your credit card sales are sufficient, you will have a high chance of approval. Most programs expect between $2,000 and $5,000 per month in credit card sales.
- Bank Statements: The MCA provider’s underwriters will want to see your bank statements to evaluate cash flow. In some cases, you can get an advance on your bank statement cash flow if it is sufficient.
- Other Possible Issues: Problems such as tax liens, bankruptcies, foreclosures or other negative financial events may hurt you. Make sure you know your history before starting to apply.
A merchant cash advance can be a great way to fund your business. It is often easier to receive when you are just starting compared to a bank loan. However, you will still need to qualify. Knowing the answers to these questions and having appropriate documentation will help you out.