How Does Your Credit Score Impact Your Merchant Cash Advance?

Merchant cash advances (MCAs) are an option for businesses with bad credit because MCA providers focus more on the projected revenue of the business than its credit rating. While having a good credit score can result in more favorable payment terms, a business with poor to average credit may still qualify for a merchant cash advance. In the event of default, however, a funder can move to seize business assets.

At ReconcileMyMCA.com, we help merchants nationwide reconcile their cash advances. We regularly work with business owners who rely on MCAs due to their bad credit rating. If your business is struggling to meet the terms of a merchant cash advance, our experienced debt relief specialists can help. To learn more, please contact our office or complete the convenient intake form today.

How Does Your Credit Score Impact Your Merchant Cash Advance?

Merchant cash advances are frequently an option for small businesses that do not qualify for a traditional business loan. A business receives financing upfront from a funder in exchange for a percentage of its credit card sales over time; payments are automatically deducted from the business’s daily sales. 

Unlike traditional loans, merchant cash advances generally do not require good credit. Instead, MCA providers consider whether the business has a consistently high sales volume by evaluating:

  • Annual business income
  • Projected future income growth
  • Bank account statements
  • Credit card processing statements and credit check authorization

On the other hand, the business’s financial status, including its credit rating, will weigh heavily in the cost of funding. This is because merchant cash advances are not tied to an interest rate like traditional loans. Instead, the total amount to be repaid is based on a factor rate, which can be in the range of 1.2 to 1.5. When the factor rate is converted into an annual percentage rate (APR), however, the actual cost of financing may be as high as 100 percent. 

In short, having a higher credit score allows you to negotiate more favorable terms, particularly a lower factor rate, while a poor credit rating puts your business at a distinct disadvantage and increases the risk of a default.

Is a Merchant Cash Advance Right for My Business?

Merchant cash advances are best suited for businesses that need working capital but don’t qualify for a traditional bank loan. In particular, an MCA can help if your business is facing a short-term gap in funding or unexpected expenses. While good credit is not required because repayment is based on revenue, the transaction hinges on your ability to consistently generate credit card transactions.

If your business defaults on the MCA, the funder could file a lawsuit against your business. However, it is likely the MCA agreement will contain a clause called a Confession of Judgment whereby your business accepts liability for the cash advance and waives all legal defenses in the event of default. This allows the funder to file a judgment with the court and recoup funds by seizing your business’s assets.

In addition, if you have a poor credit, the MCA provider may require you to sign a personal guarantee. This means your personal assets (e.g. home, savings, investments) will also be at risk if you default on the repayments. Given that a poor credit rating will invariably result in a higher factor rate, your business may quickly be in a bind if you experience a shortfall in sales. 

How ReconcileMyMCA.com Can Help

If your business is at risk of defaulting on a merchant cash advance, the best decision you can make is to contact our experienced debt relief specialists. We will take the time to review the terms of your MCA agreement and explore all your options. A properly structured agreement should include a reconciliation clause, which requires the funder to restructure the payment terms, as long as you meet certain conditions. 

Our team has in-depth knowledge of cash advance agreements and will negotiate with your MCA provider to reconcile the advance. If the funder refuses to restructure the terms, you may have a legal basis for a lawsuit. In any event, trust ReconcileMyMCA to always work in your best interests. 

We offer cost-effective service and the finest representation and will put all our efforts into restructuring your cash advance. Once your business is back on solid ground, we also provide a subscription service that gives you access to ongoing counsel on meeting your obligations under any merchant cash advances. 

Above all, we are committed to helping you continue business operations and protecting your financial future. The sooner you contact our office, the sooner we can reconcile your cash advance and help you keep your business moving in the right direction. Please complete the convenient intake form — our debt relief specialists are available 24/7.