Merchant Cash Advance Application and Documentation Requirements

Published January 8, 2024
Merchant Cash Advance Documentation and Checklist

Documentation and Requirements

  • Application
  • Bank Statements
  • Credit Card Processing Statements
  • Personal Identification
  • Void Check

Significance of Each Document

Merchant Cash Advance (MCA) stands out as a flexible financial solution for businesses, providing a lump sum in exchange for a percentage of daily credit card sales. To embark on this alternative funding journey, companies must understand the specific documentation and requirements involved in the application process.

1. Application:

The Merchant Cash Advance application starts with submitting detailed business information. This includes essential details about the company, such as its legal structure, industry, and the explicit purpose for seeking a Merchant Cash Advance. Accuracy and completeness in providing this information lay the foundation for a smooth application process.

2. Bank Statements:

Bank statements are vital documents that shed light on the business’s cash flow. MCA providers carefully analyze these statements to evaluate the company’s ability to navigate short-term financial obligations. A robust and consistent cash flow indicates the business’s proficiency in repaying the advance through daily credit card sales.

3. Credit Card Processing Statements:

In Merchant Cash Advance, credit card processing statements assume paramount importance. These statements reveal the volume and consistency of credit card sales, providing MCA providers valuable insights into the business’s revenue streams. This information becomes instrumental in determining the advance amount and the percentage of daily credit card sales earmarked for repayment.

4. Personal Identification:

Ensuring the legitimacy of individuals associated with the business is a standard requirement. Personal identification documents, such as government-issued IDs, may be requested to verify the identity of stakeholders. This step ensures accurate documentation and compliance with regulations.

5. Void Check:

In addition to bank statements, a business may be required to provide a void check matching the account number from the bank statements. This is used to confirm the bank ownership and reduce risk.

Merchant Cash Advance Timelines and Expectations

Understanding the timelines and requirements associated with a Merchant Cash Advance (MCA) is essential for businesses comparing financing options. Understanding the ins and outs of the process removes hurdles and creates a smoother process. Here’s a comprehensive look at the timelines and standard requirements:

1. Application Processing Time:

The initial phase of the MCA journey involves providing personal and business information and necessary documents. This allows the underwriter to review your application and confirm you meet the initial requirements for approval. While traditional financing routes may take weeks for approval, MCAs can offer approval within hours, making them an attractive option for businesses needing quick capital.

2. Offer Presentation and Review:

Once the application is processed, businesses receive an initial offer from the MCA provider. This stage marks a critical point where companies should take the time to review the terms and conditions thoroughly. While the offer presentation is prompt, businesses are encouraged to ask questions and seek clarification to ensure they fully comprehend the proposed terms. If you compare different offers, compare apples to apples, such as the approval amount, total payback amount, and daily capture amount of your credit card sales.

3. Acceptance and Approval:

Upon acceptance of the offer, the application moves into full underwriting. MCA providers expedite this process, aiming for a seamless transition from acceptance to approval. Typically, this occurs within hours, and agreements are sent for electronic signature.

4. Funding Timeframe:

One of the notable advantages of Merchant Cash Advances is the rapid funding timeframe. Unlike traditional loans that may take weeks for disbursement, MCAs can fund within a day or less.

5. Dynamic Repayment Period:

The repayment structure of MCAs is designed to align with the business’s cash flow. This dynamic nature allows for flexibility during slower periods and ensures that repayments are manageable during busier times. Companies should anticipate daily or weekly withdrawals as a percentage of their credit card sales to fulfill their repayment obligations.

6. Ongoing Communication:

Throughout the MCA process, businesses can expect ongoing communication with the provider. This may include updates on the application status, clarification of terms, and guidance on the repayment process. Open communication is critical, and businesses should feel comfortable contacting their MCA provider with any questions or concerns.

Merchant Cash Advance Eligibility Criteria

Merchant Cash Advances (MCAs) are a popular financing option for businesses looking for quick and flexible access to capital. While the structure of MCAs differs from traditional business loans, there are basic qualifications you should consider before applying. Understanding these factors can significantly impact your chances of approval and the terms offered by the MCA provider.

Business Sales and Card Receivables:

Unlike traditional financing, which may focus on income stability, MCAs often consider a business’s daily credit card sales. MCA providers typically assess the average daily credit card receivables to determine the amount they’re willing to advance. A consistent and healthy volume of credit card transactions can enhance eligibility.

Time in Business:

MCA providers may prefer businesses with a track record of operations. The length of time your business has been in operation can influence the MCA provider’s assessment of stability and reliability. While newer businesses may still qualify, those with a proven history may enjoy more favorable terms.

Credit Card Processing History:

Since MCAs are closely tied to credit card sales, providers often analyze a business’s credit card processing history. Consistent and substantial credit card transactions can indicate a stable cash flow, increasing the likelihood of approval. A history of chargebacks or irregularities may be viewed less favorably.

Business Bank Statements:

MCA providers may request access to your business bank statements to assess cash flow and financial health. Maintaining a positive balance and avoiding overdrafts can contribute positively to your eligibility. Demonstrating a steady cash flow reassures MCA providers about your ability to meet daily or weekly repayment terms.

Purpose of Funding:

Clearly stating the purpose of the merchant cash advance can impact eligibility. Whether it’s for inventory purchases, equipment upgrades, or marketing initiatives, providing a detailed plan can instill confidence in the MCA provider regarding the responsible use of the funds.

Repayment Ability:

Just like traditional working capital loans, MCAs require a reliable repayment source. MCA providers want assurance that your business can handle the daily or weekly repayments based on credit card sales. A stable and predictable cash flow is crucial for a successful merchant cash advance.

Tips To Maximize Approval Chances

Optimize Credit Card Sales:

Boosting your daily credit card sales can positively influence MCA eligibility. Consider implementing strategies to increase customer payments through credit cards, such as promotions or loyalty programs.

Enhance Time in Business:

While you can’t change the past, showcasing the growth and stability of your business over time can strengthen your application. Emphasize milestones, achievements, and expansion plans demonstrating a positive trajectory.

Minimize Chargebacks:

Address any issues contributing to chargebacks and strive to minimize them. A low incidence of chargebacks signals reliability to MCA providers and enhances your chances of approval.

Maintain Healthy Bank Statements:

Regularly monitor and manage your business bank accounts. Avoid overdrafts and maintain a positive balance, reflecting financial responsibility and stability.

You may also like