Can You Get a Merchant Cash Advance with Bad Credit? Tips to Improve Approval Odds

Getting quick access to capital can be a challenge for many small business owners, especially those with less-than-perfect credit. Traditional bank loans usually require a high credit score, significant collateral, and a lengthy application process. That’s why a merchant cash advance (MCA) can be an attractive alternative financing option.

An MCA provides an upfront lump sum of capital in exchange for a percentage of future credit card sales. There’s no set repayment schedule – the MCA provider takes a fixed amount from daily credit card receipts until the advance is paid back in full. The entire process can take just days or weeks, making MCAs a fast and convenient way to get funding.

But can you still get approved for an MCA if you have bad business or personal credit? The answer is yes, you can – though interest rates may be higher. Here are some tips to boost your chances of getting a merchant cash advance approved, even with poor credit.

How MCAs Work

First, it helps to understand what MCA lenders look for when evaluating an application. With an MCA, repayments come from a percentage of credit card sales, so the lender mainly considers your processing volume and history. Credit scores and business financials like tax returns do come into play, but are less important than for a bank loan.

The MCA provider advances a lump sum, then takes a fixed percentage of daily credit card receipts until the balance is repaid. For example, say you get a $50,000 MCA at a factor rate of 1.5. The lender would then deduct $750 per day from credit card sales ($50,000 x 1.5% = $750) until the $50,000 is paid back.

There are no set repayment terms – the balance gets paid back faster or slower depending on processing volumes. This flexibility is what makes MCAs useful for businesses with fluctuating cash flow.

MCA Qualification Criteria

While credit scores are considered, the main qualifications for an MCA are:

• Time in business – Most providers require at least 9-12 months. Startups generally don’t qualify.
• Credit card volume – Gross monthly volume of at least $5,000 is common. Higher is better.
• Clean bank statements – No overdrafts or insufficient funds. Steady deposits preferred.
• Valid business license/EIN – Helps establish you as a registered business.
• Decent personal credit – Mid-600s scores may qualify, but 700+ improves chances.

As long as you meet these basic criteria, less-than-perfect credit doesn’t automatically disqualify you. But it may impact the MCA terms you’re offered.

How Bad Credit Affects MCA Terms

The two main components of an MCA agreement are the advance amount and the factor rate. Here’s how poor credit could impact the terms:

• Lower advance amount – Lenders may cap the lump sum to a smaller percentage of your average monthly card volume.
• Higher factor rates – Interest rates typically range from 1.1-1.5 for good credit borrowers. With bad credit, rates of 1.5-1.8 are more common.
• Shorter term – Some providers may limit higher risk MCAs to 6 months repayment rather than 12.

The best MCA providers understand that bad credit happens and will still work to get you fair terms. Being up front about your credit situation can help the lender make an accurate risk assessment.

Tips to Get the Best MCA with Poor Credit

If your business needs quick financing but your personal or business credit is lacking, focus on these areas to improve the terms you’re offered:

1. Highlight steady card volumeEmphasize that while your credit may be spotty, your card processing is consistent and sufficient to repay the advance quickly. Provide several months of statements to back this up.

2. Have a solid business planBeing able to explain exactly how the capital will be used to grow your business helps demonstrate you are low risk. Investing in equipment or inventory that will lead to higher sales is ideal.

3. Get a cosignerAdding a cosigner with better credit may allow you to get a larger MCA amount or lower rate. Make sure they understand the repayment process and risks before signing.

4. Offer collateralPutting up business assets as additional security can give the lender more confidence in your ability to repay. Equipment, property, or invoices are common MCA collateral options.

5. Pay down existing debtsIf possible, paying off business credit cards, loans or other debt can show you’re committed to getting your finances in order. This also improves your debt-to-income ratio.

6. Build creditIt’s not a quick fix, but starting to actively improve your personal and business credit scores now will expand your financing options down the road.

7. IncorporateForming a corporation or LLC can separate your personal and business credit. This prevents your personal credit issues from impacting your company.

8. Use a brokerAn experienced MCA broker has relationships with many lenders and can help match you with one amenable to bad credit borrowers. This streamlines the process.

Other Bad Credit Business Financing Options

If you need funds fast but want to avoid high MCA costs, here are a few other financing options that may work for bad credit borrowers:

• Business credit cards – Easier to qualify for than loans and build credit. Watch for high APRs.
• 401(k) Business Financing – Borrows against existing 401(k) balance. No credit check required.
• Equipment financing – Finance specific equipment purchases. Focus is on asset not credit score.
• Revenue-based financing – Repaid with fixed percentage of monthly revenue. More flexible than MCAs.
• Invoice factoring – Get cash advances against unpaid customer invoices. Limited credit impact.
• Angel investors – Private individuals provide startup capital in exchange for equity.
• Crowdfunding – Raise small amounts from a large number of supporters.
• Grants – Government and nonprofit grants provide free capital you don’t repay. Very competitive.
• Hard money loans – Asset-based financing from private investors/funds. Higher rates but will lend to those with bad credit.

The Bottom Line

A merchant cash advance can still be an option for bad credit borrowers who need fast financing. While you’ll likely pay higher rates, it beats not getting funding at all or resorting to predatory lenders. With some strategic planning, you can get an MCA approved and work to improve your business credit standing for more affordable financing options later on.