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The Underwriting Process for Merchant Cash Advances: An Inside Look

Merchant cash advances have become an increasingly popular financing option for small businesses, especially those that may not qualify for traditional bank loans. But, what exactly is the underwriting process for MCAs – and how can you increase your chances of approval? Let’s dive in.

Understanding MCA Underwriting

MCA underwriting differs significantly from that of a conventional bank loan. There’s no emphasis on your personal credit score, collateral, or debt-to-income ratios. Instead, underwriters analyze your business’s overall health and cashflow.

The 3 Keys Underwriters Assess

1. Revenue and Cash Flow: This is paramount. Underwriters want to see a consistent flow of revenue into your business account over an extended period – typically 3-12 months. They’ll scrutinize bank statements, considering:

  • Average monthly revenue and seasonal fluctuations
  • Revenue sources (is it overly concentrated or diversified?)
  • Whether cash flow is adequate to service the advance repayment

2. Industry and Business Type: Some business models and industries are considered higher-risk. A retail store may be viewed more favorably than a restaurant – since staffing, food costs, and perishables make the latter’s cashflow less predictable.

3. Overall Business Profile: Factors like:

  • Time in business (most funders prefer 12+ months of operations)
  • Online reviews and ratings
  • Public record searches (outstanding liens, judgements, bankruptcies)

…are all reviewed to gauge stability and reputation.

Maximizing Your Approval Odds

So, what can you do to strengthen your MCA application?

Organize Financial Documentation

Have at least 6-12 months of bank statements and financial records ready to go. This lays a clear cashflow trail for underwriters to follow. Bonus Tip: Also consider separating business and personal banking to make evaluation easier.

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Know Your Numbers

Familiarize yourself with key MCA factors like your average monthly revenue, expenses, credit card processing volume, and profit margins. Being able to speak to these confidently signals you’ve got a handle on your business.

Highlight Business Growth and Stability

Do you have a proven track record, consistent clientele, and strong community reputation? Emphasize these strengths. Consider drafting an overview of your business history and achievements. Remember: underwriters want to feel confident they’re funding a healthy, legitimate enterprise.

Reputable Funders = Streamlined Process

It’s true – underwriting standards can vary considerably between MCA companies. Working with an experienced, reputable lender streamlines the process. Their expertise means they’ll clearly set accurate expectations from the start.

At the end of the day, MCA approval comes down to being able to demonstrate your business brings in sufficient, stable cashflow to repay the advance. The more organized and forthright you are from the beginning, the smoother the underwriting experience.

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Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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