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Can You Get A Merchant Cash Advance With Bad Credit?

Merchant cash advances have gained popularity as a financing option for businesses looking for quick access to capital. However, one common concern among entrepreneurs with less-than-ideal credit is whether they can qualify for a merchant cash advance. In this post, we will explore the possibility of obtaining a merchant cash advance with bad credit and provide insights on how businesses can navigate this situation.

Understanding the Role of Credit in Merchant Cash Advances

While creditworthiness plays a significant role in traditional financing options, merchant cash advances focus more on a business’s sales performance and future revenue potential. Unlike loans, merchant cash advances are based on a percentage of future sales, making credit scores less of a determining factor. Lenders assess the overall health of your business and its ability to generate consistent revenue.

Alternative Assessment Criteria

Merchant cash advance providers often employ alternative criteria to evaluate businesses with bad credit. They consider factors such as monthly sales volume, cash flow, and the length of time the business has been operating. These factors help lenders gauge the repayment capacity and assess the risk associated with providing the advance.

Sales Performance as a Key Factor

Lenders primarily focus on the sales performance of your business when evaluating a merchant cash advance application. They analyze your monthly revenue and average daily sales to determine the advance amount you qualify for. If your business demonstrates strong sales performance, even with bad credit, you may still have a chance of obtaining a merchant cash advance.

Providing Documentation of Sales

To strengthen your application, it’s crucial to provide accurate documentation of your business’s sales performance. This includes financial statements, bank statements, and sales records. These documents give lenders a clear picture of your revenue trends and help build confidence in your ability to repay the advance.

Working with Specialized Lenders

Certain merchant cash advance providers specialize in working with businesses that have bad credit. These lenders understand the challenges faced by entrepreneurs with credit issues and are more lenient in their evaluation process. Research and identify lenders that specifically cater to businesses with bad credit to increase your chances of approval.

Using Revenue as Security

In the unique case of a merchant cash advance, conventional forms of collateral like equipment, inventory, or accounts receivable are not typically used. Instead, the lender looks at your business’s future revenue as a form of security. This approach decreases the risk for the lender, making it possible for businesses with bad credit to still qualify for a merchant cash advance.

Clearing the Misunderstanding Surrounding Co-Signers and Creditworthiness

In most cases, a co-signer isn’t necessary for a merchant cash advance. Instead, lenders usually require involvement from the largest shareholder in the business. Importantly, the emphasis is placed less on creditworthiness and more on the projected revenues of the business. It’s recommended to communicate with your lender about these specific requirements when considering a merchant cash advance.

Building a Strong Business Case

When applying for a merchant cash advance with bad credit, it’s crucial to present a strong business case. Highlight the unique selling points of your business, demonstrate your market potential, and provide a comprehensive plan on how the advance will be utilized to generate additional revenue. A solid business case can offset the impact of bad credit and instill confidence in the lender.

Obtaining a merchant cash advance with bad credit is possible, albeit with certain considerations. While traditional credit scores play a limited role, lenders focus on your business’s sales performance and alternative assessment criteria when evaluating your eligibility for a merchant cash advance.

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Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. about the author.

Category: Advice

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