If you’re thinking about taking a merchant cash advance and want to know what documents you need, keep reading!
Depending on the type of business you have, and the type of financial arrangement you’re creating, there are a number of documents needed.
Is this a CC split?
If so, you’ll probably need to provide the lender with copies of your credit card processing statements.
It’s not unusual for lenders to want to see a month to date, and 12 months of business bank statements to show your revenue is consistent.
Proof of ownership
Merchant cash advance lenders want to know you actually own the company you’re trying to take funding against. Typically this will mean an EIN letter, and a K1 from your tax return showing you own the company
In order to prove your business is actually operating out of the address you claim, lenders will want a copy of your lease and proof of rent payment.
Voided check and drivers license
Typically, in order to generate contracts, lenders will ask for these basic documents to show your seriousness and to prove you’re the actual person who applied. Providing a copy of a valid drivers license helps lenders know they’re working with the real person in question who applied.
While this is not a closing document, it’s part of the closing process needed for a merchant cash advance. During the interview, the lender goes over the terms and conditions, and discusses how you’re going to use the funds and why you need them. The purpose is to understand your business, your intentions for use of funds, and just to get a sense of your business.
Depending on your situation, there are other closing documents that could be needed for a merchant cash advance
Do you have an existing judgement/UCC lien?
If you have a UCC lien against the business, some lenders will want more information about the lien – why it was placed, and what it’s for. Some lenders only do first position loans, which means they’ll want to know what the UCC lien is for. If the lien is for another merchant cash advance lender, it’s probable that the lender will want to get information about the cash advance you took – in order to pay it off.
Lenders might google your business
It’s not uncommon for lenders to google your business, look for a website, or other proof of business operations.
It’s not uncommon for lenders to ask for purchase orders, invoices, and other information to learn more about your business and to see that you’re actually in business.
A merchant cash advance is not a business loan. Instead, it is an early advance on your future credit card sales. Once you apply for this kind of advance, the money is immediately deposited in your merchant account. Then, a percentage of your credit card sales are removed each day to repay the advance. For a business in need of cash, this is a fast way to get funding.
How It Works
A merchant cash advance is designed to give businesses the cash they need as quickly as possible. The application process is done entirely online, and approval happens in just a couple of hours. Afterward, you can get your funding in just 24 hours.
One of the key things to look at in a merchant cash advance is the holdback rate. The holdback is the amount of your sales that you use to repay the advance. Normally, this works out to about 10 to 20 percent of your credit card sales. With a higher percentage, you can repay the advance faster. Because this type of funding does not use a fixed payment, you repay less if your business has a particularly slow month.
Before you get a merchant cash advance, you should also look at the factor rate. This amount is typically between 1.14 and 2. The factor rate is based on your monthly sales, how long your company has been in operation and how stable your sales are. You can calculate the amount you will repay based on the factor rate. For example, a business may borrow $100,000 with a factor rate of 1.14 for a term of 12 months. By the end of the 12 months, the company will repay $114,000.
Since the duration of the advance varies based on your sales, the amount that you actually repay can change. If you take longer to repay the advance, then you end up paying more. When you pay off the advance early, then you end up paying less.
Factor rates are not interest rates. They are only based on the original amount of the advance. Before you get a merchant cash advance, you need to make sure that you know how much you will actually be repaying.
The Benefits of a Merchant Cash Advance
Whether you suddenly discovered an amazing opportunity or are suffering from a sales slump, a merchant cash advance can be a useful option. It gives you the funds you need when you need them. In just a few hours, your application can be approved. You get the funds in your merchant account within just 24 hours.
A merchant cash advance is also useful because of its flexibility. While you generally know about how much your company will earn per month, sales can vary from one month to another. With a merchant cash advance, you only repay a percentage of your sales. On slower months, the actual dollar amount is less because your sales are lower. When you have a busy month, then you end up repaying the advance faster.
If you have bad credit, a merchant cash advance is also a good option. Lenders give an advance based on your sales history and the stability of your company. If you have a strong track record of credit card sales, then you can qualify for an advance. You can still get an advance with a terrible credit score.
This type of funding also works well if you do not want to use collateral for a loan. You may be afraid to use your assets as collateral, or you may not have enough assets to get a traditional loan. With a merchant cash advance, the only thing that matters is your credit card sales. The advance is automatically paid back when you sell more products, so you do not have to worry about finding collateral.