Demystifying MCA Underwriting: What Businesses Need to Know

Demystifying MCA Underwriting: What Businesses Need to Know

Demystifying MCA Underwriting: What Businesses Need to Know

In the fast-paced world of business financing, Merchant Cash Advances (MCAs) have emerged as a popular option for small and medium-sized enterprises (SMEs) seeking quick access to capital. However, understanding the underwriting process behind MCAs can be a daunting task for many business owners. In this guide, we aim to demystify MCA underwriting by providing you with deep insights and actionable advice.

Understanding MCA Underwriting

MCA underwriting is the process through which lenders evaluate the creditworthiness of businesses applying for merchant cash advances. Unlike traditional loans, MCAs are not based on collateral or personal credit scores. Instead, lenders assess the health and stability of your business by examining various factors such as sales volume, industry type, and payment processing history.

To get started with MCA underwriting, lenders typically require basic documentation including bank statements, credit card processing statements, and proof of ownership. These documents help establish your business’s financial stability and revenue-generating potential.

Key Factors in MCA Underwriting

  1. Sales Volume: Lenders often consider your average monthly sales volume to determine your eligibility for an MCA. Higher sales volumes indicate a healthy cash flow and increase your chances of approval.
  2. Payment Processing History: Your payment processing history provides insights into how efficiently you collect payments from customers. Consistent and timely payments demonstrate financial responsibility.
  3. Industry Type: Different industries have varying levels of risk associated with them. Lenders take this into account when evaluating your application.
  4. Business Stability: The length of time your business has been operating is an important factor in underwriting decisions. Established businesses tend to have a higher chance of approval.

Benefits of MCA Underwriting

MCAs offer several benefits that make them attractive to SMEs:

  • Quick Access to Funds: MCA underwriting is often faster than traditional loan underwriting, allowing you to access capital when you need it most.
  • Flexible Repayment Options: Unlike fixed monthly payments, MCAs are typically repaid through a percentage of your daily credit card sales. This flexibility ensures that repayment aligns with your business’s cash flow.
  • No Collateral Required: MCAs are unsecured financing options, meaning you don’t need to put up collateral such as property or equipment.
  • Credit Score Flexibility: MCA underwriting focuses more on your business’s performance rather than personal credit scores. This makes MCAs accessible to businesses with lower credit scores.

Evaluating MCA Offers

When considering MCA offers, it’s essential to look beyond the headline rates and understand the overall cost. Factors to consider include:

  1. Factor Rate: The factor rate determines the total repayment amount. A lower factor rate means lower overall costs.
  2. Holdback Percentage: The holdback percentage is the portion of your daily credit card sales that will be deducted for repayment. Ensure it aligns with your business’s cash flow.
  3. Repayment Term: Consider the length of time required to repay the advance and whether it suits your business needs.

Conclusion

Demystifying MCA underwriting helps businesses navigate the process with confidence and clarity. By understanding the key factors involved and evaluating offers carefully, you can make informed decisions about using MCAs as a financing solution.

For more information or to schedule a demo, please visit Fundingo. You can also reach out to us directly by calling toll-free at (877) 227-7271.

Remember, Fundingo is here to support your business growth and provide accessible financing solutions tailored to your needs.