Are you considering applying for an MCA but wondering what exactly is required to qualify? Perhaps you’re concerned about your credit history or income level, or worried that the performance of your business might prevent you from meeting the MCA’s requirements. Maybe you’re concerned about interest rates or hidden fees associated with the MCA. Or perhaps you simply want to know the exact qualifying criteria to ensure fast approval if you need quick access to funds.
It’s essential for you to have a clear understanding of the qualifying criteria for an MCA, as they differ from the traditional loan qualification requirements you may be more familiar with.
At Business Finance Source, we make it easy to qualify for an MCA, and you can learn more by visiting our Merchant Cash Advance Financing page.
As a loan underwriter, I’ve spoken with many business owners who had concerns about the qualification requirements for MCAs. In this article I will answer the most common concerns when it comes to qualifying for MCAs.
Let’s dive in.
Business and Financial Requirements
The first set of requirements you need to qualify are related to your businesses financial performances and business operations.
Here are the key business and financial requirements you will need to qualify:
Minimum Time in Business and Revenue Requirements
Lenders prefer to work with businesses that have been operating for at least three to six months. This allows the MCA provider to confirm your business has some type of a track record of generating revenue.
Minimum Monthly Revenue Requirements
Most MCA providers require that your business has a monthly turnover between $8,000 and $15,000. Some MCA providers do allow you to qualify for an MCA with lower monthly revenue, but the higher the revenue, the more confident the MCA provider is that your business can handle the repayment terms and recoup their investment.
Business Account Deposits Requirements
An MCA provider will look at the historical volume of bank deposits to confirm how healthy your business cash flow is to confirm the volume of transactions your business processes each money. They like to see regular deposits in your bank account for the past three to six months.
Minimum Daily Business Account Balance
Your bank balance should always be in the green if possible and not in the red! MCA providers look more favorably on businesses that maintain a positive balance . If you have a positive account balance it indicates that your business has healthy cash flow, and there is a high probability that you will be able to meet your MCA repayments.
5 to 10 deposits per month from unrelated customers
Lenders want to see that your business has a diverse customer base. If you’re relying on a single customer or a small group of customers for the majority of your revenue, it could be a risk for the lender.
No more than 5 overdraft or “NSF” occurrences per month
Similarly, if your account has been overdrawn or if payments have bounced frequently, it could indicate that your business is not financially stable enough to handle an MCA.
Monthly transactions at or above $2,500
Lenders prefer businesses with a high volume of transactions, as it indicates that you have a healthy cash flow.
Credit and Loan History Requirements
The second set of requirements that lenders consider when evaluating your MCA application are related to your credit and loan history. These criteria help lenders assess the level of risk involved in lending to you.
Credit score better than 550
Lenders will review your personal and business credit scores to determine your creditworthiness. While there is no set minimum score, most lenders prefer a credit score of at least 550.
Not currently in another MCA
Lenders typically don’t lend to businesses that already have an outstanding MCA or other short-term loan, as it increases the risk of default.
Not currently in default on other loans
If your business is currently in default on any loans or other financial obligations, it could be a red flag for lenders.
No liens on business-owned property
If you stopped in the middle of an article. continue from No liens on business-owned property and don’t repeat anything above in the article again. In addition to assessing your creditworthiness and business performance, lenders will also look at your business assets to determine your eligibility for an MCA. If you have any liens on your business-owned property, it could indicate that you have existing debt that could impact your ability to repay the MCA. Therefore, lenders typically require that you have clear ownership of your business assets, free from any outstanding liens.
Business Ownership and Structure Requirements
Another important aspect that lenders consider when evaluating your MCA application is the ownership and structure of your business. This helps lenders determine whether you have the legal right to apply for an MCA and whether the funds will be used appropriately.
51% ownership interest at a minimum
Lenders typically require that the business owner has at least a 51% ownership stake in the company. This ensures that the owner has control over the business and is invested in its success. If you have multiple business partners, each partner will need to provide their ownership documentation to the lender.
Viable use of funds
Lenders want to see that the MCA funds will be used for a legitimate business purpose, such as expanding the business or purchasing inventory. If the lender suspects that the funds will be used for personal expenses or other non-business-related purposes, it could be a red flag. Be prepared to explain in detail how you plan to use the funds and provide documentation to support your claims.
Business not in a high risk industry for MCA providers
Some industries are viewed as high risk by MCA providers and for that reason you may not qualify for a MCA. Examples of high risk industries would be gambling or the adult entertainment industry. If you feel your business might be a high risk industry it is important to check with the lender to see if your business is eligible before submitting an application.
Application and Documentation Requirements to Qualify
Certain sectors are perceived as being high-risk by MCA suppliers, and as a result, you may not meet the requirements for an MCA. Instances of high-risk sectors might include gambling or the adult entertainment industry. If you believe that your enterprise might fall under a high-risk sector, it is crucial to inquire with the lending institution to ascertain if your enterprise is qualified prior to submitting an application.
Using a business checking account
You won’t qualify for an MCA if you run all your business transactions through your personal bank account. To qualify, MCA providers require that you have a separate business account so they can view the recent financial history of the business easily.
Minimum time in business
As mentioned earlier, some MCA providers will only work with businesses that have been operating for six months. The majority want you to be in business for at least 1 year before they consider your application. This requirement helps ensure that your business is established and has a track record of generating revenue.
At Business Finance Source you only need to be operating for 6 months to qualify for Merchant Cash Advance Financing.
Providing 4-6 months of bank statements
As mentioned earlier, some MCA providers will only work with businesses that have been operating for six months. The majority want you to be in business for at least 1 year before they consider your application. This requirement helps ensure that your business is established and has a track record of generating revenue.
At Business Finance Source, you only need to be operating for 6 months to qualify for Merchant Cash Advance Financing.
Basic financial documentation (e.g., driver’s license, voided check)
You will need to provide basic personal and business information, such as your driver’s license and a voided check, to verify your identity and banking information for most providers.
Some MCA providers do ask for too much documentation, almost as much as traditional banks. This documentation can include tax returns, accounts receivable summaries, and profit and loss statements.
Be sure to check with your MCA provider to see what additional documentation is required so you don’t go through the process of getting approved for an MCA and then cannot provide all the documentation to get final MCA approval.
Final Thoughts
I hope this article will help you get a good understanding and increase your chances of qualifying for an MCA with most MCA providers in the USA. If you would like to ask any specific questions about qualifying for an MCA at Business Finance Source, please contact one of our business loans advisors.