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With the booming popularity of merchant cash advances, businesses now have more options when it comes to financing their operations. But, what if you want to get one of these advances and don't want to go through the hassle of a credit check? Is it possible to get a merchant cash advance with no credit check? The simple answer is yes, it is possible. But it’s not always wise.
In this article, we’ll take a look at the advantages and disadvantages of pursuing a merchant cash advance with bad credit and explore the various options that are available.
- Merchant cash advance options are available for businesses that don't have the best credit score or enough equity.
- Merchant cash advances come with a higher cost than traditional bank loans and may require payments that are a larger percentage of the generated revenue.
- To qualify for a merchant cash advance with no credit check, businesses must have a consistent revenue stream or receivables from customers.
- Businesses should calculate the total cost of the loan and risk before applying for a merchant cash advance with no credit check.
Can You Get a Merchant Cash Advance With No Credit Check?
While it is technically possible to get a merchant cash advance with no credit check, it’s unlikely. Most merchant cash advance (MCA) providers conduct at least a soft credit check to check your creditworthiness. This information is important for the lender to gauge the likelihood of you being able to repay the advance, and will also be used to determine the terms of your advance.
It’s also important to note that the requirements to qualify for a merchant cash advance are less stringent, compared to other forms of business financing, but you’re exchanging this leniency for much higher fees.
The most important factor for MCA providers is your business’s current cash flow. To determine if your business is eligible for a merchant cash advance, lenders may look at how long you’ve been in business, your merchant processing history, and your average ticket size and volume. Yes, your personal credit is also important, but it’s not the only factor lenders will use to determine creditworthiness.
What You Need to Know about MCAs if You Have Bad Credit
If you have bad credit, you may have considered a merchant cash advance as a way to get access to capital. This type of financing is ideal for businesses with inconsistent cash flow, as payments are usually made through a fixed percentage of your credit card transactions. However, it is important to understand the terms and conditions of the advance, including any potential fees or penalties.
What Is a Merchant Cash Advance?
A merchant cash advance is a type of short-term financing. It’s an alternative lending type to traditional bank loans which offer a lump-sum of cash in exchange for monthly repayments with interest. With a merchant cash advance, a business owner agrees to sell a percentage of their future credit card sales to a merchant cash advance provider in return for an upfront, lump-sum payment. The provider then collects a predetermined percentage of the business's credit card sales until the advance, plus any fees, are repaid in full.
How Does a Merchant Cash Advance Work?
In an MCA, the amount of money advanced and the cost of the advance is determined by the “factor rate”, which is a multiple of the amount lent. Additionally, the advance provider can take a daily or weekly fixed percentage of a business's credit and debit card sales, known as "holdback", which can go toward repayment.
An MCA is also referred to as a credit card processing loan and is thus most commonly used by businesses that process a high volume of credit and debit card transactions.
What Are the Qualifications to Get a Merchant Cash Advance
As with most loan products, the exact qualifications you’ll need to apply for an MCA will vary by lender. Generally, though, in order to find the best options, you’ll want to have the following:
- A minimum annual revenue of over $100,000.
- A healthy credit history, if possible.
- Bank statements showing consistent revenue over the last few months.
- A cash flow that is expected to stay strong for the foreseeable future.
- An established business track record (usually 6–12 months).
- A physical location for the business.
- No recent bankruptcies.
- A business structure that can legally accept funding from third parties.
How Much Money Can a Business Get Through an MCA?
The amount of money a business can receive through a merchant cash advance depends on several factors including the merchant's annual revenue and credit score. Many lenders offer a huge range of financing amounts. For example, National Business Capital offers $10,000 - $5 million. This range is common.
What Can a Merchant Cash Advance be Used for?
A merchant cash advance can be used to finance a variety of small business expenses. These include:
- Covering operational costs such as rent, payroll, and utilities.
- Purchasing inventory.
- Upgrading equipment.
- Marketing and advertising campaigns.
- Short-term expansion projects.
MCA financing can also provide the capital necessary for business owners to access new opportunities, such as taking advantage of time-sensitive contracts or funding seasonal spikes in demand.
Who Can Apply for a Merchant Cash Advance?
Anyone who owns a business that is at least a few months old and has a lot of monthly credit and debit card sales each month can apply for a merchant cash advance.
What Financial Documents Do You Need to Have to Apply for an MCA?
In order to apply for an MCA, you'll need to have the following financial documents ready:
- Your business’s last three months of bank statements.
- Your business’s most recent processing statements.
- Your most recent Profit and Loss (P&L) statement.
- Your business’s three most recent federal tax returns.
- Your business's credit score (if applicable).
- A personal credit report (if applicable).
- Any additional financial documentation required by the lender.
How Can a Merchant Cash Advance Grow Your Business?
A merchant cash advance can be a great way to access fast capital to help you grow and expand your business. MCA providers provide upfront funds in exchange for a portion of your future sales. With a merchant cash advance, you can invest the funds into areas of your business like marketing, advertising, or inventory, and then pay back the advance over time through a portion of future sales. This makes it easier to manage cash flow and helps your business grow in a slow but steady way.
What Happens If You Default on a Merchant Cash Advance?
If you default on a merchant cash advance, the lender will likely take steps to collect their money. This could include suing you for the outstanding balance, garnishing your wages, seizing business assets, contacting your business partners, or selling the loan to a collection agency. Depending on the terms of your merchant cash advance, the lender may also have the right to claim any unpaid balance at any point.
Are Merchant Cash Advances a Good Choice When You Have Bad Credit?
This question has both a yes and no answer. Yes, MCAs can be a good choice for businesses with bad credit because they’re relatively easy to qualify for and offer fast funding. But it’s extremely important to do your research before committing. MCAs tend to have much higher costs than other forms of financing and aren’t fully regulated like other forms of financing.
Advantages of Merchant Cash Advances
- Accessible and fast funding. Merchant cash advances allow businesses to access funds quickly, with little up-front paperwork or scrutiny.
- Flexible repayment. Merchant cash advances are repaid through a portion of daily credit and debit card sales, which allows businesses to choose their repayment schedule based on their needs.
- Easily qualify. Since the repayment schedule is based on daily sales, qualifying for a merchant cash advance is typically easier than qualifying for traditional loans.
- No collateral required. Merchant cash advances do not require collateral, which makes them an attractive option for businesses that don't want to put their assets at risk.
Disadvantages of Merchant Cash Advances
- High costs. Merchant cash advances generally come with high up-front costs and interest, which can limit the amount of capital businesses can access.
- Short terms. Merchant cash advances typically have short repayment terms, which can be difficult to manage if businesses are not able to keep up with the rate of repayment.
- Variable repayment. Merchant cash advances rely on daily sales, which can lead to unpredictable repayment schedules for businesses.
- Limited access. Merchant cash advances are typically limited to credit and debit card sales, meaning businesses that do not accept credit and debit cards may not be able to access this type of funding.
How to Apply for an MCA When You Have Bad Credit
If you’re wondering how to apply for a merchant cash advance when you have bad credit, here are some steps to get you started:
- Research your lender options. Do your due diligence and research different MCA providers to ensure you’re getting the best deal. Make sure to read reviews, compare rates and fees, and look into any additional services that may be included.
- Check your eligibility. Most MCA providers have relatively minimal eligibility requirements, such as a minimum amount of credit card transactions and/or a minimum amount of revenue. Be sure to read the specific eligibility criteria for the lender you’re applying with.
- Gather the necessary documentation. In order to apply for a merchant cash advance, you’ll need to provide some basic documentation, including bank statements and tax returns.
- Talk to your provider if you have questions. Before submitting your application, it’s a good idea to speak with a representative of the MCA lender to get a better understanding of their services and requirements.
- Submit your application. Once you’ve gathered all the necessary documentation and filled out the applicable forms, you can submit your application. Make sure to double-check all information before submitting and keep copies of all documents for your records.
- Wait for approval. The lender will review your application and let you know whether or not your merchant cash advance has been approved. If approved, the MCA provider will release the funds to you soon after.
Will My Business Be Approved for an MCA if I Have Bad Credit?
The short answer to this question is that it depends. It’s possible for businesses to be approved for an MCA even if they have bad credit, but it’s not nearly as likely you’ll be approved as someone with good credit. Typically, bad credit ratings indicate that a business may be more of a risk to the lender, and therefore they are less willing to extend a loan.
Additionally, having bad credit can adversely affect the terms of the MCA, making it an extremely expensive funding option. Interest rates may be significantly higher and repayment terms often will be more stringent.
Business Funding Alternatives For People With Bad Credit
Due to the increasing difficulty of obtaining business funding from traditional channels such as banks and other lenders, many business owners with bad credit can’t secure the necessary financing for their startups or established businesses.
Fortunately, there are a number of other business funding alternatives available that can help those with bad credit to get the financing they need.
- Peer-to-peer lending. Peer-to-peer (P2P) lending platforms are online networks that match borrowers and lenders, allowing people with bad credit to access financing.
- Small business grants. There are many national and local organizations offering business grants to entrepreneurs with bad credit, including the SBA.
- Crowdfunding. Crowdfunding platforms are a great way to finance a business idea without having to rely on debt or loans.
- Angel investors. Angel investors are wealthy individuals who invest in early-stage companies with high growth potential, often in exchange for an equity stake. For startups who can’t otherwise qualify for MCAs, angel investors don’t necessarily require a good credit score.
- Friends and family. There’s nothing wrong with asking friends and family for a loan if you are confident that you can make the payments on time. Just treat them like a lender rather than a family member and have a concrete plan to pay back your debt.
All in all, merchant cash advances provide a possible answer for business owners searching for financial solutions without needing to pass a credit check. It's a much-needed resource for those unable to meet the standards of a regular bank loan. Merchant cash advances come with a fast approval process and are relatively simple to get, but be warned - they come with an additional cost in the form of high fees and interest rates. So while they should be considered a plausible option in times of need, using them should always be a last resort because of the extra financial burden.