A Guide to Qualifying for Quick MCA Funding

A Guide to Qualifying for Quick MCA Funding

2024.06.06

Access to finance is frequently necessary for managing a small or medium-sized business (SMB). Why? Well you need to invest in development possibilities, pay for unforeseen expenses, or close cash flow gaps. 

Traditional bank loans can be a good option for you, but they may have rigorous credit score criteria and a drawn-out application process.  

This is where quick MCA funding comes in as a potential solution for you, especially in a tight credit market where the need for high-cost funding products like MCAs peaks.  It provides a lump sum of capital upfront in exchange for a percentage of your future sales. 

The global MCA market is estimated to be worth over $20 billion, reflecting its significance as a financing option. This blog will guide you through the qualifications for obtaining quick MCA funding, helping you determine if this financing option is the right fit for your business.

Understanding MCA Eligibility: What Makes a Good Candidate?

Unlike traditional loans, MCA providers focus less on your credit score and more on your business’s potential to repay the advance. 

Here are some key factors that determine your eligibility for MCA funding requirements:

  • Minimum Time in Business: Most MCA lenders require businesses to be operational for at least six months to a year. This demonstrates a track record of generating sales and establishes your business as eligible. 
  • Monthly Revenue: Lenders look for consistent and predictable revenue streams. A healthy, monthly revenue demonstrates your ability to repay the advance without financial strain. The specific minimum revenue requirement will vary depending on the lender, but many look for businesses generating at least $5,000 per month.
  • Strong Processing History: MCA providers assess your business’s ability to repay the advance based on your past credit card processing history. They will request three to six months of bank statements or credit card processing statements to analyze your average sales volume.

Imagine you run a retail clothing store with an average monthly revenue of $10,000. 

Based on your credit card processing statements, the average monthly sales volume is $8,000. An MCA lender might be comfortable providing you with an advance of $20,000, which would be repaid through a percentage deduction from your daily sales receipts.

For instance, if the agreed-upon holdback rate is 15%, and your daily credit card sales are $267 (which is one-thirtieth of your monthly sales volume), the daily repayment amount would be approximately $40. This is calculated as 15% of your daily sales

The total amount to be repaid, known as the Purchased Amount, would include this advance plus fees, which could be represented by a factor rate—commonly ranging between 1.1 and 1.52. If we assume a factor rate of 1.2, the total repayment amount would be $24,000.

  • Beyond these core criteria, some lenders may also consider factors such as the following. 
  • Industry: Certain industries with predictable cash flow patterns, like restaurants or e-commerce businesses, might be more favorable to lenders. In fact, a study published by the Federal Reserve indicated that 10% of small businesses that sought financing in 2021 applied for a merchant cash advance, up from 7% in previous years, suggesting a growing acceptance of MCAs in various industries.
  • Business Credit History: A positive business credit history can strengthen your application, though it can sometimes be a deal-breaker. The approval rates for business loans, lines of credit, and MCAs have varied over the years, peaking at 83% in 2019 and falling to 68% in 2021. This indicates that while credit history is a factor, the overall economic climate and lender policies also play significant roles in the approval process.

Qualifying for Quick MCA Funding: Streamlining the Process

While the traditional loan application process can be time-consuming, qualifying for MCA funding is designed to be quicker and more straightforward. Here’s how to streamline the process:

  • Gather Your Documents: Have your business bank statements, credit card processing statements, and tax returns readily available.
  • Compare Offers from Multiple Lenders: Don’t settle for the first offer you receive. Shop around and compare terms, fees, and advance amounts from different MCA providers.
  • Be transparent about your business needs. Clearly communicate your funding needs and how you plan to utilize the MCA advance.

Is Quick MCA Funding Right for Your Business?

MCA funding can be a valuable tool for businesses needing fast access to capital. However, it’s crucial to understand the implications before you’re applying. 

Here are some key considerations:

  • Cost: MCAs have a higher effective cost than traditional loans. This is often reflected in factor rates, which can range from 1.1 to 1.5 or even higher.
  • Daily Repayments: MCA repayments are deducted as a percentage of your daily sales receipts. This can impact your cash flow during slow sales periods.
  • Impact on Credit Score: MCA funding doesn’t directly impact your credit score. However, late or missed payments may be reported to credit bureaus, potentially damaging your score.

Weighing the pros and cons carefully will help you determine if qualifying for MCA funding aligns with your specific business needs and financial situation.

Conclusion

Quick MCA funding offers a fast and flexible financing option for businesses that need immediate access to capital. By understanding the eligibility criteria, the application process, and considering the implications, you can determine if this approach is the right fit for your business. 

Remember, MCA funding is a financial tool, and using it strategically can help you achieve your business goals.

FAQs

1. Can I qualify for an MCA with bad credit?

A: While traditional loan applications heavily rely on credit scores, MCA providers focus more on your business’s overall financial health and future sales potential. 

Even with bad credit, you might qualify for MCA funding if your business demonstrates consistent revenue and a strong processing history.

2. How quickly can I receive funding after applying for an MCA?

A: The speed of funding is a significant advantage of MCA financing. After submitting your application and necessary documents, lenders can often provide a funding decision within 24-48 hours. 

Once approved, funds can be deposited into your business bank account within a few business days, providing you with quick access to capital.

3. How much MCA funding can I qualify for?

A: The amount of funding you can qualify for depends on your business’s average monthly revenue and processing history. 

Generally, MCA lenders offer advances ranging from a few thousand dollars to upwards of $200,000 or more.

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