How can my business qualify for a merchant cash advance?

The unexpected can throw any business for a loop. A large repair bill due right away, a tax payment that’s bigger than it ought to be, or a large debt payment that just can’t wait - banks and traditional lenders can be slow, if they’ll even extend the cash in the first place. That’s where a merchant cash advance comes in, to save the day for businesses that need cash and need it soon.

Technically speaking, merchant cash advances are not loans. They’re based on future sales and a merchant account, from which funds can be taken with each sale the merchant receives. They provide a quick infusion of cash which is paid off automatically through an agreed-upon portion of credit or debit card sales.

Several Common Reasons Why a Merchant Might Be Turned Down

However, merchant cash advances aren’t guaranteed, and there are several common reasons why a merchant might be turned down. Any lender takes the time to review applications from prospective borrowers, and merchant advance lenders are no exception. This doesn’t mean that an application needs to be perfect, but lenders will be more likely to lend funds to a business that has maintained solid income levels and has responsible financial habits.

Merchant cash advances are best for businesses with a busy storefront or online sales, including restaurants, service businesses, and other retailers. Any business who earns their primary income through credit or debit card sales can benefit from a merchant cash advance as they become available quickly and are repaid in small portions through those sales. If your business is the kind that doesn’t do a lot of credit or debit card sales, then it’s unlikely a merchant cash advance is going to be helpful. If this is the case, it may be wise to look for other, more business-friendly ways to borrow.

Lenders all work differently when it comes to the decision to lend or not. However, if your bank statements show a negative bank balance, there’s a good chance a lender is not going to lend you money. High daily sales aren’t the be-all-end-all of funding approval, but lenders are going to be much more likely to lend funds to a business that’s performing well. This is because their funding is based off of your income - income that they can take a portion of with every sale you make. The best advance terms are often reserved for merchants with a regular daily stream of card sales.

Each bank statement will be examined closely to be sure a merchant is the kind of smart and responsible customer lenders like. While any business can occasionally see the occasional return or bounced check on their bank statement, many lenders will see this as a warning sign. They want to see assurance that borrowers are capable of paying their advance back - bouncing checks, frequent insufficient funds, and negative bank account balances paint a picture of a high-risk applicant.

Any merchant applying for a cash advance will be expected to show recent merchant card sales statements, proving they make regular sales through a merchant account. The number required varies from lender to lender.

Credit History

It’s every lender’s duty to determine how risky a borrower is likely to be, and to make a decision based upon what they believe they’ve discovered. Part of this is credit history. While a strong credit score and clean history will help a merchant qualify for the best rates, this doesn’t mean you’ll be rejected outright if your credit history isn’t perfect. Credit problems that can cause problems during the application process can include defaults, bankruptcies and a thin credit history. Defaults can tell a lender that a merchant can’t be trusted to repay borrowed funds as agreed. While good credit isn’t required by any means, a smart borrower will do their best to keep a good credit history, free of red flags and showing regular payments.

Comparing Lenders and Their Financing Options

Just like banks, not every lender will be the same. There are a lot of lenders who focus their services on merchant cash advances. Each of them offers different rates and terms. Figuring out where to get an advance can be a daunting process. Comparing lenders and their financing options is absolutely worth the effort and can lead to significant savings of 20% to 30%. A financial consultant will help you make the right decision for your financial future.

Even though cash advances can be more expensive, depending on the needs of the business, this higher cost can be more than worth the speed of the funding. Since this financing is received in a timely manner, it is a great choice for businesses who need cash immediately - there’s no lengthy wait to receive funds.

Just because the bank won’t lend you the funds you need doesn’t mean you won’t be able to borrow. Even those with a troubled financial history can qualify for merchant cash advance programs, provided card sales are strong enough. Though not every application will be accepted, many different businesses can find their answer in an advance.