If you’re a business owner considering a merchant cash advance, you may have some apprehensions about the application process. Are you worried about the amount of documentation required to apply? Or perhaps you’re anxious about meeting the eligibility requirements or being approved for the advance. Additionally, you may have concerns about the repayment terms, including interest rates and fees, as well as any limitations on how you can use the funds. Lastly, you may be worried about the impact on your business’s finances and operations. If any of these concerns resonate with you, it’s important to address them before applying for a merchant cash advance to ensure that you make the best decision for your business.
As a business loan underwriter at Business Finance Source, I’ve processed countless merchant cash advance (MCA) applications and spoken with many business owners who have concerns about the application process. In this article, I’ll share the 5 steps of applying for an MCA and provide the necessary information you need to confidently complete the application process.
Let’s take a look at the 5 steps.
The 5 Steps in the MCA Application Process
Step 1: Choose a Provider
The first step in applying for an MCA is to choose a good MCA lender. There are two main types of providers: brokers and direct lenders. Brokers work with multiple lenders to help you find the best deal, while direct lenders provide funding directly to you.
Learn more about the differences between direct business lenders vs brokers
At Business Finance Source, we always recommend working with a direct lender instead of a broker. A broker is essentially just forwarding your MCA application to a direct lender, and they have no control over whether your application gets approved or not. Using brokerage websites also runs the risk of harming your credit score if multiple lenders do a full credit check, which may appear on your credit report.
Business Finance Source is a Direct MCA lender, which means that we will review your application and have the authority to approve or deny it. We also do not do hard credit checks, we instead do soft credit checks and those credit checks will not appear on your credit report.
To help you choose a provider check out our list of 50 Merchant Cash Advance companies in the USA
Step 2: Gather Documentation
Before you start the application process, the most important task you can complete to speed up the process and make the MCA application easier is to gather all the documentation you will need. The documentation you will need will vary depending on the provider, but it typically includes:
- Business bank statements (typically for the last 3-6 months)
- Credit card processing statements (if applicable)
- Business tax returns (typically for the last 2-3 years)
- Business financial statements (such as a profit and loss statement or balance sheet)
- Business registration documents (such as a business license or articles of incorporation)
You probably have most of these documents already, but you may need to get some of them from your accountant, bookkeeper, or other financial professionals who work with your business.
At Business Finance Source the only documentation you need to apply for an MCA is the last 3 months of your business bank statements which reduces your paperwork headaches.
If you would like to know more about what documents you might need to qualify for other types of small business loans, check out our article on common documents that lenders request.
Step 3: Fill Out an Application
Once you have chosen a provider and gathered your documentation, it’s time to fill out the MCA application. Most MCA providers offer online applications that can be completed in just a few minutes. The application will typically ask for basic information about your business, such as your name, address, and contact information, as well as more detailed information about your financial situation.
One very important piece of information you will need on your application is your businesses credit and debit card sales each month. Trry to provide an accurate monthly average of your monthly credit card. This volume will be used to calculate the amount of MCA funding you might be eligible for.
If you want to get an idea of the exact business information you might be asked to provide, why not check out the business information we ask for in our MCA application form at Business Finance Source.
Step 4: Wait for Approval
After you submit your application, a loan underwriter will review your application and make a decision. This review process takes anywhere from a few hours to a few days, depending on the provider. If the loan underwriter approves your application, the provider will contact you to discuss the terms of the agreement and how to proceed with funding. If you are not approved, the provider will typically provide you with an explanation of why you were denied and what you can do to improve your chances in the future. If you want to learn more about MCA underwriting, check out our MCA underwriting guide
Step 5: Receive Funding
If you are approved for an MCA, the funds will typically be deposited into your business bank account within a few days. The amount you receive will depend on the terms of the agreement, but typically ranges from a few thousand dollars to several hundred thousand dollars. To learn more about MCAs at Business Finance Source check out our Merchant Cash Advance Financing page.
Now that you know how to apply for a MCA, let’s look at ways you can improve your chances of getting approved for an MCA.
Ways you can Improve Chances of Getting Approved for a MCA
Improving your credit score
One important thing a loan underwriter considers when deciding on whether or not to approve your MCA is your credit score. The higher your credit score, the more likely you are to get approved and to receive better terms and rates. To improve your chances of approval, take steps to try paying off debts, making payments on time, and getting incorrect entries on your credit report removed.
Building a stronger business history
Underwriters will also look at your business history when considering your application for a merchant cash advance. A strong history of consistent sales and revenue will give the underwrite confidence to approve your application. So work to build a strong business history ramping up sales and revenue where possible.
Having a clear plan for how you will use the funds
Some but not all MCA underwriters will want to see that you have a clear plan for how you will use the funds from a merchant cash advance. It’s important to be really specific when saying how you plan to use the funds. For example, instead of saying that you need the funds to cover operational expenses, instead go into more specific detail about each expense you will be covering and how much money you will need for each expense. The more specific and detailed your explanation is, the more confident lenders will be in your ability to use the funds effectively.
Final thoughts
I hope this article has helped reduce some of the apprehensions around applying for a merchant cash advance. As you can see, the 5 steps of the process are straightforward. My advice is to choose a direct lender if you can. And if you are struggling to get an MCA or have been turned down, consider using the tips I have provided on ways to improve your chances of getting approved.