03 Apr What You Need to Know to Qualify for a Merchant Cash Advance
For a lot of business owners, a merchant cash advance (MCA) sounds like a dream come true.
Quick access to working capital? Yes, please!
But before you jump in, you need to understand what it takes to qualify. Qualification criteria for an MCA differ significantly from traditional bank loans, which makes them accessible to many small business owners like you, but it also means you’ll need to be strategic in your preparation.
Want to learn when an MCA makes sense and how to position yourself for approval? You’ve come to the right place. We will cover what lenders look for, what documents you need, and how your business operations affect your chances. Whether you’re running a retail store, a restaurant, or an e-commerce brand, these insights will help you confidently approach the MCA approval process.
Understanding the Basics of a Merchant Cash Advance
A merchant cash advance isn’t technically a loan. Instead, it’s a lump sum of capital you receive upfront in exchange for a percentage of your future credit card or debit card sales. You repay it automatically through daily or weekly deductions from your revenue, making it a convenient solution if your business processes a high volume of card transactions.
Because MCAs are structured differently from traditional loans, the approval process emphasizes your cash flow over your credit score. That’s one reason why so many small businesses turn to this option when they need fast capital and can’t afford the lengthy underwriting process banks typically require.
How Your Sales Volume Influences Approval
Your sales volume is one of the most important factors lenders consider when evaluating your MCA application. Since repayment comes directly from your future transactions, lenders want to see a consistent and sufficient sales stream. If your business consistently generates high credit card sales, your chances of approval increase significantly.
Let’s say you operate a coffee shop with steady daily sales of $1,000, most of which come through debit and credit card payments. That regular inflow gives the lender confidence that you can afford daily repayments without disrupting your operations. In contrast, if your business has fluctuating or seasonal income, you might need to demonstrate additional cash reserves or show historical data that proves long-term performance.
You should prepare to show at least three to six months of credit card statements. These will give lenders a snapshot of your typical revenue flow and help them determine the advance amount they’re willing to offer. The stronger your sales, the better your offer terms may be, both in funding amount and payback flexibility.
Your Time in Business Still Matters
Although merchant cash advances are more lenient than traditional loans when it comes to credit scores and collateral, your business’s age still matters. Most MCA providers want to see that you’ve been operating for at least six months, though some may require a year or more, depending on the provider.
The reasoning is simple: a longer operating history signals greater stability. If you’ve weathered seasonal slumps, changing consumer behavior, or even a shifting economy, lenders see you as less risky. On the other hand, if you’re brand new, you may struggle to prove that your revenue is consistent enough to meet repayment terms.
So, before applying, consider whether you’ve hit that minimum threshold and can back it up with business licenses, bank statements, or other forms of documentation. The more proof you can offer of your business’s staying power, the more confidence lenders will have in you.
Your Personal Credit Score Isn’t Everything (But It Still Counts)
One of the appealing aspects of MCAs is that they don’t rely heavily on your credit score. Unlike banks that often require a minimum credit score of 680 or higher, many MCA providers are willing to work with scores in the 500s, especially if your business shows strong revenue performance.
That said, your credit score still plays a role, especially if your sales volume is borderline or if you’re asking for a larger advance. Think of it as a tie-breaker: if your revenue and business history are solid but not extraordinary, a higher credit score can tip the scales in your favor.
If your credit score isn’t where you’d like it to be, don’t panic. Focus instead on preparing strong documentation of your business activity. The more clarity and transparency you offer, the less risk the lender sees, and the more likely you are to qualify.
Documents You Need
Getting approved for an MCA depends not just on what your business looks like, but also on how well you can prove it. Documentation is a big part of this process. You should gather and organize key records before you begin applying.
At minimum, you’ll likely need:
- Recent business bank statements (typically the last three to six months)
- Recent credit card processing statements
- A valid business license or proof of business registration
- Government-issued ID (for identity verification)
Some lenders may request additional documents depending on your industry or the size of the advance you’re requesting. The better prepared you are, the faster you’ll move through the approval process and onto funding.
Consider the Cost of Capital
Before moving forward, understand the cost of a merchant cash advance. Since MCAs are technically not loans, they don’t come with interest rates in the traditional sense. Instead, they use a “factor rate”—a multiplier typically ranging from 1.1 to 1.5.
For example, if you receive an advance of $20,000 at a factor rate of 1.3, you’ll repay $26,000 total. That’s $6,000 in cost for access to capital, and repayment happens daily or weekly, depending on your provider.
Factor rates depend on risk, so if your business shows high volume, stable revenue, and strong documentation, you may qualify for more favorable rates. Still, you need to evaluate whether this cost structure works for your business’s current goals.
Ask yourself: Will this funding help you generate revenue quickly enough to justify the expense? Can you handle the reduced daily cash flow? These are questions you need to answer honestly to ensure this type of funding is truly right for you.
A Real-World Example to Consider
Let’s imagine you run a boutique clothing store in a busy shopping district. You’ve landed a golden opportunity: a wholesaler is offering you a discounted inventory deal for a limited time, but you need the cash upfront to secure it. Applying for a traditional loan might take weeks, which would cause you to miss the window.
With a merchant cash advance, you can receive the funding within a few days, take advantage of the inventory deal, and stock your store in time for the upcoming shopping season. Because your store sees daily credit card purchases, you’ll be able to repay the advance through regular sales.
In this case, the speed and ease of an MCA give you a strategic advantage, one that might not have been possible with other types of financing.
Setting Yourself Up for Success
If you’re seriously considering a merchant cash advance, your best move is to be proactive. Review your monthly sales reports, organize your financial documents, and take stock of your business’s health. Lenders want to see a business that’s not only active but thriving. The better your preparation, the more favorable your terms will likely be.
Take the time to understand the MCA process. Know the costs, ask questions, and make sure you partner with a reputable provider who’s transparent about fees and repayment terms. When you go in informed and organized, you set yourself up to secure the capital you need, without unnecessary setbacks.