Underwriting

The underwriting process when obtaining a small business loan from a merchant cash advance company is quite minimal in comparison to other bank loan products.  The underwriter pulls the merchant’s personal credit and if the credit is below 500, then the merchant most likely will not be able to receive a traditional advance.  He may however, qualify for a starter program.

At this point, we suggest that the merchant be fully honest and open about all outstanding issues the business may have – whether that be past due creditors, tax liens, and late lease/mortgage payments.  All of these issues will be discovered by all underwriters, and thus it saves time in the beginning to discuss all these issues.  Furthermore, a merchant cash advance company is a private lender – and trust is a major issue when developing a relationship.  These types of issues can be overcome if discussed in the beginning of the process.

Once the underwriter has fully underwritten the file he will produce for the merchant a range of numbers for the requested amount of money.  Usually the cost of the money ranges between 1.25 to 1.50 the original amount, and the holdback percentage can range typically from 5% to 35% depending on the advance.  (To read about a cautionary note regarding different underwriting procedures click here!)  Every file is unique though, and merchants may qualify for more or less.

The monthly Visa/MasterCard sales is the largest factor that effects the maximum amount of money the merchant can receive from the merchant cash advance company.  Gross sales in comparison to Visa/MasterCard sales are probably the next largest factor that can effect the maximum amount of funding the merchant can obtain.  If the merchant’s Visa/MasterCard sales only make up 20% of the business, then the lender may be more inclined to advance a larger amount of money because cash flow will not be harmed if the lender takes a larger portion of the Visa/MasterCard sales.

For more about contracts and additional documentation.