Questions Merchant Cash Advance Companies Will Ask During Underwriting

Merchant cash advance companies provide financing to small businesses in exchange for a percentage of future credit card sales. Unlike traditional small business loans, merchant cash advances do not require fixed monthly payments. Instead, the merchant cash advance company takes a preset percentage of the business’s daily credit card sales until the advance is repaid in full.

While merchant cash advances can provide quick access to capital for businesses that may not qualify for traditional financing, they can also be quite expensive. Merchant cash advance companies typically charge factor rates ranging from 1.1 to 1.5, meaning the total repayment amount is 1.1 to 1.5 times the amount advanced. This equates to annual percentage rates often exceeding 100%.Due to the high cost, business owners should thoroughly evaluate their options before pursuing a merchant cash advance. The underwriting process is when the merchant cash advance company will assess the risk of providing financing to your business. Here are some of the key questions merchant cash advance companies will likely ask during underwriting:

Financial Questions

• How long have you been in business? Most providers require at least 9-12 months of operating history.
• What are your annual and monthly revenues? Providers will want to see consistent sales history and adequate monthly revenue to repay the advance. Many require minimum monthly revenues of $10,000-$15,000.
• What are your average daily/weekly credit card sales? Providers base approval amounts and terms on your credit card sales volumes, so expect to provide recent merchant processing statements.
• What percentage of your sales are credit card versus cash or check? Businesses that rely heavily on credit card sales are ideal candidates. Those with a high mix of cash/check sales may not qualify.
• Do you have any existing debt or loans? Providers will want to understand your current debt obligations to assess repayment ability.
• Have you ever defaulted on a loan or merchant cash advance? Don’t try to hide any past difficulties – be upfront about your history.
• What are your profit margins? Providers may request financial statements to evaluate the health of your business.

Business Operations Questions

• What does your business do? Explain your products/services and target customers.
• Who are your suppliers and vendors? Providers want to understand your business model and supply chain.
• How many employees do you have? More employees means higher overhead and payroll costs.
• Do you rent or own your business property? Providers may ask for a copy of your lease agreement.
• What licenses and permits does your business require? They will verify you have all necessary licensing.

Advance Use and Repayment

• How much financing are you seeking? Provide the amount and explain how you will use the funds.
• How quickly do you need the funding? Advances can fund in as little as 24 hours in some cases.
• How do you expect to repay the advance? Explain your credit card sales volumes and timing.
• Do you anticipate any changes in your business over the next 6-12 months? Let them know of any expansions, renovations, relocations or other plans.
• Have you taken a merchant cash advance before? Be transparent about any current or past advances.

Personal Financial Questions

While merchant cash advances focus on business performance over personal credit, providers still ask about your personal finances:

• What is your personal credit score? Most providers require 500+ but the higher your score the better.
• What other personal debt obligations do you have – mortgage, credit cards, auto loans, etc?
• Do you rent or own your home? Providers want to verify your housing situation is stable.
• What were your most recent personal tax returns? Expect to provide personal returns for advances over $100k.

Documentation Needed

In addition to the financial information provided through your application and interview, most providers will request documentation including:

• Personal and business tax returns
• Recent bank statements
• Merchant processing statements showing credit card sales
• Voided business check for ACH withdrawals
• Driver’s license and documents verifying business ownership
• Lease agreements and other contracts
• Accounts receivable aging report
• Other financial statements like profit and loss

Be prepared to provide any documents requested. Having organized records will help streamline the underwriting process. Avoid delays by gathering everything upfront.

The underwriting process allows the merchant cash advance company to fully assess the risk of providing your business with financing. While the list of questions may seem lengthy, try to provide as much detail as possible. Your openness and transparency will build trust and improve the likelihood of approval.

If approved, be sure to thoroughly review the merchant cash advance agreement before signing. Understand the total repayment amount, the holdback percentage, the potential repayment period, and all fees involved. Get clarity on anything you are unsure of.

While certainly not the cheapest financing option, a merchant cash advance can provide fast access to capital when funded responsibly and repaid quickly. Going in with full transparency and eyes wide open is key to avoiding the pitfalls of these products. Asking the right questions upfront ensures you make the best possible decision for your small business.