The Impact of Credit Scores on Merchant Cash Advances

The cash advance has been around for centuries in one form or another. Today, it’s seen in the form of an exchange of funds for a promise to repay those funds within two to four weeks, in most cases. Merchant cash advances are an option for business funding for companies with less-than-stellar credit ratings. 

Essentially, when you apply for a merchant cash advance (MCA), you’ll make a promise to repay that loan with a percentage of your credit card transactions over time. This automates repayment by having a portion of the daily sales of your business deducted each day until the loan amount is satisfied. 

These loans typically don’t require good credit, which is what makes them desirable for many fledgling companies and businesses with minimal or poor credit history.  

Do you need a good credit score to get a merchant cash advance?

Some MCA providers will want to see a personal credit score of around 500 to fund your advance, but that’s not always the case. These loans are often funded based on other factors related to the business:

• Annual business income
• Bank statements
• Projected income growth
• Statements from credit card processing

Your credit score may be considered, but it typically won’t become a major factor in determining whether you qualify for the loan. For most cash advance companies, the ability of your business to generate credit card transactions consistently is far more important than your business or personal credit score. 

Will cash advances show up on your credit report?

The merchant cash advance will not report to your credit, in almost all cases. It’s simply not part of the business model for the cash advance company. If you default on repayment, however, merchants may hire attorneys or third-party collection agencies to resolve the loan on their behalf. 

This is where you could see an MCA show up on either your business or personal credit report. It may show up as a collection account, or in more serious cases, it may show up as a judgment against you because the company hired an attorney to file a lawsuit against you for failing to meet the terms of the repayment agreement. 

The Bottom Line

Typically, as long as you can prove that you have the means to repay the merchant cash advance, the provider isn’t going to worry about your credit rating. This is a large part of the reason that businesses seek these loans in the first place—they don’t have a good enough credit score for traditional lending. 

These loans are convenient for those who need more flexible lending solutions, and most of the “risks” others discuss can be avoided by those who go into the process of getting a merchant cash advance properly informed and prepared. As long as you’re prepared to repay the loan from your credit card sales, the MCA could be just what you need.